Thursday, December 2, 2010

Stoneleigh: Humans are not good at the taking the long term view. Our ability to do so does vary significantly with circumstances though, depending on our perception of stability. When we collectively feel that tomorrow will be similar to today, and that we have our basic needs covered, then we are free to think about longer term concerns and the bigger picture.

In contrast, when we exist under circumstances of little forward visibility, and where we are not confident about our access to basic necessities, then the luxury of the long term disappears, and we are pitched into a state of short term crisis management.

Economics describes this parameter as a change in our discount rate. When the discount rate rises, it means that the future is discounted increasingly steeply in comparison to the present, so that today has far more value than next week, and almost infinitely more value than the far future. This has been the natural state for humanity throughout much of its existence.

The fortunate in the developed world have lived through an unprecedented period of wealth and relative peace, hence longer term concerns have made it on to the political agenda. Concern for the environment and for other species always peaks in times of plenty, as the discount rate falls and people take on broader and longer term concerns. Unfortunately, this state is unlikely to last, meaning that the environment is not likely to retain its current level of protection, and that level is already insufficient to prevent continued degradation of our natural capital.

It is not just hard times that lead to a rise in the discount rate, it is times of uncertainty. In recent years, the world has been changing at such a rapid pace, that economic visibility has already contracted substantially. Even though the trajectory has been positive for much of the time (assuming you regard increasing material wealth for the few as positive), the rate of change has been uncomfortable for many, and has required people to be more and more fleet-footed in order to keep up.

Consequently, the number of people able to participate in the advance has been falling and the scope of that advance has been narrowing. More people, and companies, and sectors of the economy, and even countries, are falling off the back of the accelerating treadmill all the time.

As uncertainty has increased, there has been more and more emphasis on gaming the system in order to wring a quick profit out of it and less and less emphasis on productive investment, as productive investments have too long a time horizon to deliver gains in a world proceeding at a frenetic pace. This has been going on for years, and has led to our current milieu of casino capitalism, or ponzi finance.

This system of money chasing its own tail in ever tighter circles is clearly unstable, and I would argue is about to self-destruct under the increasing pressure of its own internal contradictions and the catabolic (self-consuming) process taken past real limits. As it does so, the pace of change will becomes even more rapid for a period of time, and coupled to that will be increasing hardship for a critical mass of people.

Up to now, where those who have lost out have not been a critical mass, their plight has been essentially invisible to a news system written by the winners, but that will change as the numbers affected increase dramatically.

The implication for discount rates is that they are about to shoot up from a level that is already too high, and that therefore people will collectively cease to value the future. This state is not conducive to rational or intelligent decision-making or the weighing up of alternative courses of action. It is a psychological environment favouring crisis management and simplistic knee-jerk reactions. Sadly, people in this collective state of mind are more subject to simplistic answers proposed by populist manipulators, and are all too prone to vote against their own best interests.

What we need to do is to take actions now to reduce our exposure, and the exposure of as many people as possible, to the risks inherent in the system as it has developed over at least several decades, if not longer. This is of course much easier said than done. Following in the advice in The Automatic Earth lifeboat primer - on reducing debt, holding cash, gaining some control over the essentials of one's own existence and, above all, building community - is the best way of taking enough mental pressure off in the future to enable people to hang on to an appreciation for the longer term.

The greater the number of people who do not have to worry where their next meal is coming from, the greater the number who will be able to keep their heads and retain the luxury of the (relatively) long term. This is important not just for them, but for others as well. The human over-reaction to adverse events typically has a greater impact than the adverse events themselves. We need to do whatever we can to blunt that over-reaction for the sake of holding our societies together in a highly uncertain future.

As financial markets shuddered and then nearly imploded in 2008, the Federal Reserve opened its vault to the world on a scope much wider and deeper than previously disclosed.

Citigroup, struggling to stay afloat, sought help from the Fed at least 174 times during one remarkable 13-month period. Barclays, the British bank, at one point owed nearly $48 billion to the Fed. Even better-off banks like Goldman Sachs took advantage of Fed loans offered at rock-bottom rates.

The Fed’s efforts to stave off a financial crisis reached far beyond Wall Street, touching manufacturers like General Electric, the Detroit automakers and Harley-Davidson, central banks from Britain to Japan and insurers and pension funds in Sweden and South Korea. Under orders from Congress, the Fed on Wednesday released details of more than 21,000 transactions under the array of emergency lending programs and other arrangements it conjured up in response to the crisis.

The disclosures, which the Fed had resisted, offer the most detailed portrait of a panicky period in which the Fed lent money to banks, brokers, businesses and investors to keep the financial system functioning. The documents show that some of the biggest names in American business were either coming to the Fed in need of a bailout, or trying to make money at a time when the Fed was trying to entice investors back into the markets. Among the latter were prominent investors and entrepreneurs like John A. Paulson and Michael S. Dell, and the pension funds of the Philadelphia Teamsters and Omaha’s teachers, who were betting they could profit if the rescue worked.

At its peak at the end of 2008, the Fed had about $1.5 trillion in outstanding credit on its books. The central bank, in essence, pumped liquidity, the lifeblood of credit markets, into the circulatory system of an economy that was experiencing a potentially fatal heart attack. “I think our actions prevented an even more disastrous outcome,” said Donald L. Kohn, who was the Fed’s vice chairman during the crisis. Without the Fed’s help, he said, “liquidity would have dried up even more than it did, asset prices would have fallen even more than they did, and economic activity and employment would have fallen further and faster then they did.”

But Senator Bernard Sanders, independent of Vermont, who wrote a provision in the law requiring the disclosures by Dec. 1, reached a different conclusion. “After years of stonewalling by the Fed, the American people are finally learning the incredible and jaw-dropping details of the Fed’s multitrillion-dollar bailout of Wall Street and corporate America,” he said. “Perhaps most surprising is the huge sum that went to bail out foreign private banks and corporations.”

Mr. Sanders said the Fed should have forced banks to restrict executive pay and reduce the financial burdens on mortgage borrowers as a condition of its aid. The Fed, already reeling from attacks from both the right and the left over its latest effort to spur the economy, a plan to buy $600 billion in Treasury securities, braced itself for another moment in the spotlight.

In a statement accompanying the disclosure, the Fed said it had fully protected taxpayers. “The Federal Reserve followed sound risk-management practices in administering all of these programs, incurred no credit losses on programs that have been wound down, and expects to incur no credit losses on the few remaining programs,” it said. The 21,000 transactions span the period from December 2007 to last July. Even as investors began poring over the disclosures, details emerged from the trove of new data.

From December 2007 to October 2008, the Fed opened swap lines with foreign central banks, allowing them to temporarily trade their currencies for dollars to relieve pressures in their financial markets. The European Central Bank drew the most heavily on these currency arrangements, the records show, but nine other central banks also made use of them: Australia, Denmark, England, Japan, Mexico, Norway, South Korea, Sweden and Switzerland.

At home, from March 2008 to May 2009, the Fed extended a cumulative total of nearly $9 trillion in short-term loans to 18 financial institutions under a credit program. Previously, the Fed had only revealed that four financial firms had tapped the special lending program, and did not reveal their identities or the loan amounts. The data appeared to confirm that Citigroup, Merrill Lynch and Morgan Stanley were under severe strain after the collapse of Lehman Brothers in September 2008. All three tapped the program on more than 100 occasions.

The American subsidiaries of several foreign banks also benefited substantially from the program. Those institutions included UBS of Switzerland; Mizuho Securities of Japan; and BNP Paribas of France. The impaired credit markets quickly stretched well beyond Wall Street, engulfing money-market mutual funds and commercial paper — short-term borrowings that companies rely on for day-to-day operations like meeting payroll and paying vendors.

In short order, the Fed set up programs to prop up both markets and get credit flowing again. The new data shows that some of the biggest names in the mutual fund industry sold assets to Fed-financed buyers during the credit crisis, including funds sponsored by Fidelity, BlackRock, Merrill, T. Rowe Price and Oppenheimer. In the first week of the Commercial Paper Funding Facility, the Fed bought more than $225 billion in debt. Companies ranging from Ohio’s Fifth Third Bank to the best-known bank franchises of Europe and Asia, like Royal Bank of Scotland and Sumitomo, were the primary occupants of the new lifeboat, along with the finance arms of the nation’s hard-pressed automakers.

But joining them were issuers of commercial paper with ties to Caterpillar, McDonald’s and Verizon. The data also show that the commercial paper market was impaired well into the latter half of 2009.Another Fed program, the Term Asset-Backed Securities Loan Facility, brought the Fed into the unprecedented position of supporting small business, auto, student, and credit card loans. Plentiful helpings of low-cost debt encouraged institutions to ramp up lending and lured back private investors.

Among prominent investors in that program were the businessmen H. Wayne Huizenga and Julian Robertson; Kendrick R. Wilson III, a former Goldman executive who had been a top aide to Henry M. Paulson Jr., the Treasury secretary during the crisis; and Christy K. Mack, the wife of John J. Mack, the former chief executive of Morgan Stanley. Other surprises emerged from the data. Both the American International Group, the insurer bailed out by the government, and Lehman owned big stakes in funds that bought TALF securities. So did Jonathan S. Sobel, who ran the mortgage department at Goldman Sachs.

Big institutional investors, like Pimco, T. Rowe Price and BlackRock, borrowed from the TALF program. So did the California Public Employees Retirement System, the nation’s largest public pension fund, and several insurers and university endowments.

For the lucky few on Wall Street, the Federal Reserve sure was sweet. Nine firms -- five of them foreign -- were able to borrow between $5.2 billion and $6.2 billion in U.S. government securities, which effectively act like cash on Wall Street, for four-week intervals while paying one-time fees that amounted to the minuscule rate of 0.0078 percent.

That is not a typo.

On 33 separate transactions, the lucky nine were able to borrow billions as part of a crisis-era Fed program that lent the securities, known as Treasuries, for 28-day chunks to the now-18 firms known as primary dealers that are empowered to trade with the Federal Reserve Bank of New York. The program, called the Term Securities Lending Facility, ensured that the firms had cash on hand to lend, invest and trade.

The market was freezing up. Effectively free money, courtesy of Uncle Sam, helped it thaw. The European firms -- Credit Suisse (Switzerland), Deutsche Bank (Germany), Royal Bank of Scotland (U.K.), Barclays (U.K.), and BNP Paribas (France) -- borrowed $5.2-6.2 billion in Treasuries 20 different times. The one-time fees they paid on each transaction ranged from $403,277.78 to $481,110. Deutsche led the way with seven such deals. On each transaction, the fee paid for the 28-day loan is equal to a rate of just 0.0078 percent.

The first of these sweetheart deals began April 17, 2008. They ended nearly a year later on March 5. On that day, Goldman Sachs borrowed about $5.8 billion and paid just $450,000 for the privilege.Goldman was one of four American firms that also paid that rock-bottom rate. Citigroup, defunct investment bank Lehman Brothers, and Merrill Lynch, which was gobbled up by Bank of America in a government-pushed transaction, benefited from the save-Wall-Street-at-all-costs approach. Goldman and Citi got the 0.0078 percent rate on five separate occasions, tops among U.S. banks.

The transactions highlight the extraordinary steps taken by the Fed -- and encouraged by both the Bush and Obama administrations -- to save Wall Street from its own mistakes. Households and small businesses have not been as lucky. The Fed's crisis-era programs "provided liquidity to particular institutions whose disorderly failure could have severely stressed an already fragile financial system," the Fed said in a statement Wednesday posted on its website. A spokesman did not respond to an e-mailed request for comment.

This year, Wall Street is poised to break yet another record for employee compensation and bonuses. Thanks to near-zero percent interest rates -- also set by the Fed -- firms are able to continue making easy money with minimal risk.

That's a fairly clear declaration by The Fed that these "Assets" were worth no more than $15 billion, right? After all, that's all they got credit for when posting their collateral.

Ok, two immediate questions:

What was that, and at what value was that carried on their balance sheet at the time?

Where is it now and what value is it being carried at TODAY on their balance sheet?

Ah, Kemosabe, now we get to a problem, don't we? See, if BAC had to borrow $15 billion, why would they post collateral at that sort of haircut? Further, that's a God-Awful loss embedded in those instruments that's being assumed by the NY Fed and BOG and we damn well ought to know through their quarterly reports where that presumed loss of value went and where it was.

There's a problem of course - BAC never reported that sort of loss any time during this "crisis." That leaves me with the question as to where these so-called "assets" are now, what they're marked at, and whether we're still dealing with massive and outrageously bogus "marks" - that is, claims of value - in these securities!

By the way, they're not alone. Barclays has a bunch of these transactions with big haircuts too. So does Goldman, with several TSLF transactions that show $2 billion borrowed and $25 billion+ of notional value of alleged "collateral" deposited.

Then there's Wells, which has a nice single-page output that looks like this:

Have a look and take a gander. And don't keep your investigation to the above - try to find just ONE large institution that had all of its collateral postings valued at, say, 80 cents on the dollar or better.

Best of luck.

Remember, the claim was that all of these "facilities" were liquidity operations.

The Fed told us explicitly - many times - that it was taking "good collateral" to back up these loans and that it was quite confident it would not lose any money.

That, it turns out, was true.

What we were not told is that the "collateral" they took was so bad that it was in some cases valued at TEN CENTS on the dollar or less, and in each of these cases it leaves open the question as to where is that collateral now, having been returned to the bank, what is it actually worth, and how is it being carried on the books - because what we do know from the bank's financial reporting is that it most-certainly was NOT written off.

There's more than enough here in these tables to call for a massive forensic investigation into the accounting practices of each and every one of these institutions as the fact that FRBNY valued this "collateral" at such a tiny fraction of it's claimed value by the submitting institution leads to an immediate question as to how one squares that valuation with the values reported by the banks in their quarterly and annual reports, and whether they were at the time, or are today, in point of fact, at anything approaching actual valuations, insolvent.

Money managers, including hedge funds, mutual and pension funds borrowed $71.1 billion under the Federal Reserve's Term Asset-Backed Securities Loan Facility, according to a filing Wednesday on the central bank's website.

Through the program, known as TALF, the central bank offered for a year low-cost loans to investors, enticing them to buy top-quality bonds backed by consumer finance loans, such as auto loans and credit-card debt. TALF was aimed at reviving consumer lending in the broad economy during the financial crisis.

Pacific Investment Management Co., a unit of Allianz SE, was the largest borrower of this cheap funding, the data show. The California-based giant fixed-income asset-management company borrowed $7.13 billion from the program known as TALF.

Private investment firm Belstar Group used $2.98 billion of TALF money and launched funds in March 2009 to participate in both the asset-backed and commercial-mortgage-backed portions of TALF. Similarly, Cornerstone Investment Management LLC borrowed $1.48 billion through TALF, setting up a fund specializing in TALF-eligible securities.

As of Sep. 30, more than 60% of TALF loans were repaid in full, with interest, ahead of their maturity dates, which range from March 2012 to March 2015, the Fed said on its website. Loans of $29.7 billion remain outstanding and are current in their payments. Since its introduction in March 2009, TALF aided the sale of more than $100 billion in bonds backed by auto, student and equipment loans and credit-card debt—the bulk of all the asset-backed deals sold in U.S.

During the credit crisis, when capital markets froze up, it made "complete sense that hedge funds and money managers were taking advantage of this program," said Dan Nigro, chief executive of Warfield Consultants, a Montclair, N.J., firm focused on asset-backed and residential-mortgage-backed securities. "The program was very successful. Returns under the TALF program will be tremendous." The Fed wrapped up the consumer loan-backed portion of TALF in March.

The co-chairs of the presidential Deficit Commission released the final draft of their report today, and it's now scheduled for a Friday vote by members of the Commission. We're being told that it's a fairer and more reasonable document than its predecessor. It's nothing of the kind.

In many ways this document is worse than the draft that preceded it, and those much-lauded "compromises" evaporate in the cold light of reality. This new draft is lipstick on a piggy-bank robber, a package of cosmetic changes meant to disguise its true purpose: To raid the future financial security of most Americans in order to benefit a few.

This proposal would still cripple government's vital role in society by imposing arbitrary limits on spending. It would still place great financial burdens on lower- and middle-class Americans while easing those of the wealthy. All in all, it's the most profoundly right-wing policy prescription the nation has seen in decades. Democrats who lack the political courage to oppose it will be remembered for it for a long time to come.

There are more balanced and effective ways to balance the budget. Instead, this plan is so ideologically driven that it actually increases the deficit at times, while the reductions it does achieve are needlessly unfair and destructive. Here are ten reasons why this proposal remains unacceptable and must be opposed -- not just by progressive or Democrats, but by anyone of good conscience who wants to reduce the deficit in a responsible way:

1. It's still a massive tax giveaway for the rich.

Imagine the outcry if a deficit-cutting commission recommended spending more money on government programs. Then imagine it recommended spending that money on programs that weren't needed, and which only benefited the wealthy. When it comes to tax revenues, that's exactly what this proposal does.

Remember, spending's only one-half of the deficit problem, and tax revenue's the other. A responsible plan would increase revenue wherever it's fair and possible to do so. Yet, in the name of "deficit reduction," this plan actually proposes cutting taxes -- for the wealthiest Americans. Its defenders point out that the proposal also ends all sorts of itemized deductions -- but those deductions primarily help the middle class.

Defenders will also say that it no longer eliminates vital middle-class tax breaks (like mortgage interest deductions) completely, which is true. But it would force "Congress and the president" to decide which of these deductions is retained and at what levels. And it would force Congress and the president to offset them with increased tax rates elsewhere, which the authors know is politically almost possible.

It's true that the plan proposes to tax capital gains and dividends as ordinary income. [1] But Wall Street law firms are no doubt already developing workarounds -- and, in any case, the net effect is still a tax break for the wealthiest Americans.

The wealthy even get a break on the payroll tax used to fund Social Security. The plan's defenders boast that it would raise the payroll tax cap to cover 90 percent of all income. But that was the percentage the tax covered back in the 1980s, before the explosion in very high-end wealth distorted the entire economy. This plan doesn't return to that 90 percent level until 2050! That's a 40-year wait before we fund Social Security with as much high-end income as we did twenty years ago.

In a little-noticed observation, the actuaries who reviewed this proposal observed that "lower marginal tax rates are expected to have a large effect on (this tax)... reducing revenue... by roughly 20 percent." The net effect will be to "increase the long-range... actuarial deficit... " Got that? This Commission's co-chairs insisted on attacking Social Security because they claimed to be so concerned about its long-term actuarial deficit (which is easily fixed by asking the wealthy to pay their fair share). Yet, having seized control of Social Security's under that pretense, they then propose tax breaks for the wealthy that make Social Security's long-term deficit worse.

Since this is supposed to be a deficit-reducing Commission, not a party-time-for-the-rich Commission, how are they going to pay for such big giveaways?

2. It still increases the tax burden for everyone else.

That's where you come in. (Unless you're a billionaire, of course.) Unless Congress and the president come up with something else, this proposal would set arbitrary caps on home-mortgage deductions and other tax deductions that are primarily used by the middle class. As we've seen, even that rise in payroll taxes is expected to hit the middle class more than the wealthy.

And, while this needs further study, it looks as if their new tax brackets place more of a burden on you, too. The 10 percent and 15 percent tax brackets seem to be compressed into a 12 percent bracket, which doesn't seem like a dramatic change. The 28 percent bracket goes to 25 percent, which is a little more than 10 percent and is more than offset in most cases by the loss of itemized deductions. But the highest bracket takes a deep plunge, from the current planned level of 39.6 percent down to 28 percent. That's more than 28 percent. Sweet -- if you're rich. But somebody's gotta pay for it.

That would be you.

3. It will result in millions of lost jobs.

As the Economic Policy Institute has demonstrated, this proposal will cost the nation four million lost jobs and damage our economic growth. This new draft demands even deeper discretionary spending cuts, enacted even sooner, so the loss of jobs is likely to be even greater.

That's why Mary Kay Henry, President of the SEIU, said, "This proposal is a jobs killer at a time when our number one priority must be putting America back to work." It's why AFL-CIO President Richard Trumka said that "this whole discussion reeks of hypocrisy. The faux deficit hawks on the commission -- and Senators who claim unemployment insurance must be paid for -- have no problem clamoring for more unpaid Bush tax cuts for millionaires. We need to focus now on the jobs deficit."

The report's defenders will dismiss Henry and Trumka as "special interests" (while criticizing any mention of co-chair Erskine Bowles' position on Morgan Stanley's Board of Directors or the financial interests of other commissioners as an "ad hominem" attack). But these two leaders are aware of proposals like the EPI's and the Citizens' Commission on Jobs, Deficits, and America's Economic Future. These reports demonstrate that these radical changes aren't needed to balance the budget -- and that, in fact, they interfere with that goal.

4. The elderly will face harsh benefit cuts.

The average Social Security retirement benefit today is $1,100, and even less for women ($920). Under this proposal a median earner, someone earning $43,000 in today's dollars, would face a 20 percent (19.1 percent) benefit cut.

It looks, therefore, as if the average benefit would eventually drop to $889 overall, with women receiving an average of $744. These cuts are offset somewhat for lower-income workers, but, as we'll see, those offsets aren't what they seem to be.

5. Most of us will still work longer for less.

You won't just receive less in benefits. You'll work longer to get it, since they're raising the retirement age.

We're told that there will be exceptions for people who would face hardship if forced to work longer. That's a nice thought, given all the benefit-slashing going on. But that decision is kicked down the road and assigned to Social Security administration staff. The cuts are fixed, but the exemptions are left vague and deferred to people who aren't trained in that kind of analysis.

Their definition of "hardship" is narrow, too, and it excludes hardships like discrimination. The net effect of this proposal is to ensure a longer work life for most people while making jobs harder to get. The only small mitigating factor they promise is delayed to a future date and left vague.

6. It punishes the long-term jobless.

This proposal doesn't just ignore the nation's "jobs deficit." It makes it worse, at a time when the number of long-term unemployed Americans is at historical levels. This program doesn't just leave them in the lurch, or ignore their urgent need for unemployment assistance. After having made their situation worse, it then punishes them in their old age too.

Much has been made about the proposal's "generous" suggestion that benefit cuts be made offset for lower-income workers who are at the brink of poverty in old age. But many (if not most) of the workers struggling today would be excluded from this change. As the actuarial analysis of the proposal notes, "workers... (at) the level of the low and very low scaled earners, but with less than 25 years of (qualifying) work... would be subject to the full reduction in benefit for longevity... "

There's more, but you get the gist. These much-vaunted "safety nets" are filled with holes.

7. Women will pay an unfair price.

Women get the short end of the stick here, too. Women already receive less in retirement benefits than men, on average -- right now they receive an average of about $920 per month. They live longer, too. Women have traditionally moved in and out of the workforce more than men, because of traditional gender roles. They'll be punished even more for this difference under this proposal, thanks to rules and loopholes like the one described above. For a "family values" culture, that's not a very family-oriented policy.

Here's the future Simpson and Bowles plan for the mothers of America: First, cut their income by reducing the adjustments to their benefits. That means they'll get less than $920 in tomorrow's dollars. Then offer them a poverty exemption -- but dangle it out of reach for millions of women who chose to stay home with their children for a few years (and all of them who couldn't find work when they looked).

Thanks for raising us, Mom, now eat your Friskies and pipe down.

8. That "living longer" benefit bump is a pittance.

We're also hearing about the "benefit bump" America's beleaguered seniors have been promised once they reach extreme old age. But here's what the proposal actually says: "Provide benefit enhancement equal to 5% of the average benefits (spread out over 5 years) for individuals who have been eligible for benefits for 20 years."

Since they're proposing to raise the retirement age to 68 and then 69, that means offering this bounty when a retiree becomes 88 or 89. With the estimates we've made above, that amounts to a "bonus" of $45 per month ($37 for women).

9. The plan still discriminates -- by income and by race.

Even that minimal adjustment is likely to benefit wealthier -- and whiter -- Americans. As Paul Krugman and others have pointed out, average life expectancy has risen by six years for the top 50 percent of earners, but only by 1.3 years for the bottom half.

White Americans still live five years longer on average than African-Americans, too. So who is this really helping?

10. It doesn't solve the health-care problem. It just shifts the cost.

This proposal is filled with irreversible triggers, like the Doomsday Machine in Dr. Strangelove, that are set to go off if targets aren't met. But they're all designed to trigger spending cuts or regressive tax changes. When it comes to the single greatest driver of future deficits -- health-care costs -- there's no trigger for the public option that would significantly lower costs.

Here's a proposal that is in the plan: Repeal the CLASS Act. That's the Community Living Assistance Services and Supports Act, which provides funds that allow people to receive medical care in the home rather than the hospital. Why does this proposal single out the CLASS Act? It's only projected to cost $11 billion in 2015. But then, that's typical of this proposal. It ignores the big issues and then goes out of its way to step on programs that serve the public good.

Their health proposals tinker at the margin of cost and ignore the big picture. Reducing administrative cost support for Medicaid merely shifts costs from the federal government to the states, while freezing provider payments will reduce access to care with minimal reduction in costs. They also plan to cut health benefits severely for federal employees.

They want to force Medicare recipients to pay more out-of-pocket for their care. That's a double whammy for seniors who have already had their Social Security benefits cut.

The authors claim that because "(Medicare) cost-sharing for most medical services is low, the benefit structure encourages over-utilization of health care." That's unproven theory, especially when discussing seniors. Studies have shown that increasing out-of-pocket costs discourages utilization -- it keeps people from getting medical care -- but studies among younger populations that seemed to back this idea have recently come under question, while other studies among seniors suggest they're likely to skip needed care and suffer as a result.

These Medicare changes will impose unnecessary hardship without addressing the real causes of health-care cost. Why? Because private health insurance is one of this Commission's "sacred cows," and any program that would provide public competition for these insurers is deferred (while "all-payer" coverage is buried elsewhere as one of many possible alternatives once other avenues have failed.)

What do they propose for the under-65 crowd instead? One of the main features of their proposals is an increase in the health "excise tax," which would undermine employee benefit health plans and shift more health-care costs on the under-65 set, too. (For greater discussion of this very bad idea, see here.)

"No class act." Somehow that seems to say it all. Commission member Dick Durbin is a good Senator who has provided valuable service. But it's painful to hear him say, as he did today, that he's inclined to vote for this plan because the times call for "shared sacrifice." That's a highly regrettable statement. In this plan, the sacrifice is only shared among those who can least afford it, while the wealthiest enjoy a free ride.

Based on the wailing in Washington DC you might think the deficit commission co-chairmen, Erskine Bowles and Alan Simpson, have gored some sacred cows. In fact, they have produced 59 pages of nearly incomprehensible beltway mumbo jumbo and gimmicks -- an alleged deficit-slashing plan that actually takes a powder on every one of the core fiscal issues.

And that starts with the gushing river of budgetary red ink itself. In order to “get real” as former Republican Senator Simpson is wont to say, you must account for incremental deficits of about $350 billion per year from the inevitable lame-duck deal to extend the Bush tax cuts, the AMT patch, the various expiring tax credits, the doc fix, the estate tax fix, extended unemployment benefits, Build America Bonds, and all the other hide-the-ball phony program expiration tricks now embedded in the budget. Then, add a couple hundred billion per year more in red ink because the commission’s economic assumptions -- such as 5% unemployment and 5% per year nominal GDP growth by 2015 -- are way too optimistic. Lay all that over the so-called “current law” budget baseline and you have a minimum federal deficit of $1.2 trillion per year through 2015; that is, $6 trillion of new bonds and bills that need to find a home over the next five years.

And what does Simpson-Bowles do about this tidal wave of US Treasury paper? Well, it urges a fat zero in fiscal year 2011 and then a pinprick savings of $56 billion, or 5% of the built-in deficit, in 2012. After that, the reductions get bigger, but still total only $875 billion over the full five-year period, or less than 15% of the deficit baseline. Stated differently, after all of the alleged “tough choices” and policy heroics recommended by the co-chairmen, we would only need to finance $5 trillion of new Treasury debt, not $6 trillion, through 2015.

The surface reason for this timidity is the assumption that the US economy is too “fragile” to absorb any material tax increase (or spending cuts) over the next several years. Therefore we must borrow another $5 trillion from our children and grandchildren -- so that not a single middle- or upper-class taxpayer will be denied the spending power to buy a few more Coach bags, iPads, barbecue grills, and Caribbean cruises.

Besides the rather ignoble intergenerational heist implied in this proposition, the main problem is that it assumes the required massive deficit financing sources -- the international monetary system and global bond markets -- are not equally as fragile as the US economy is alleged to be. And that wholly unexamined assumption is by no means obvious.

At the moment, the Fed is monetizing 100% of the deficit. This means that it's crediting the deposit accounts of government bond dealers with money made out of thin air to the tune of about $100 billion per month in exchange for existing bonds and notes. In turn, dealers and traders use these deposit account proceeds to take down an equivalent $100 billion monthly of newly issued Treasury paper, thereby keeping Uncle Sam’s checks from bouncing.

But only $600 billion of QE2 monetization has been so far announced by the Fed -- meaning that at the current $100 billion monthly rate, the bucket will be drained by next spring. In theory, of course, the Fed could resort to QE3, QE4, and so forth -- printing its way through the entire $5 trillion of new federal financing that would be required after the Simpson-Bowles “savings” have been fully implemented. Yet by 2015 that means the Fed’s balance sheet would reach an elephantine $7.5 trillion -- a figure nine times greater than the central bank’s footings on the eve of the Lehman heart attack in September 2008.

Assuming that not even Helicopter Ben would go for a money drop that big, the true “fragility” issue then presents itself. When the Fed’s big fat POMO bid disappears from the Treasury market, or the post-meeting press release merely hints that it's coming, or especially when the Fed’s PR mole embedded at CNBC leaks the news, won't the smart money, the fast money, and the wise guys go sellers -- if they haven’t done so already?

The fact is, the $9 trillion US Treasury market will reach $14 trillion, or 100% of current GDP -- even after all the Simpson-Bowles savings have been harvested. Yet the marginal buyers of US Treasury issuance in the recent past -- China, the other East Asian mercantilists, Brazil, and OPEC -- can no longer afford to renew a heavy bid without importing virulent inflationary pressures into their own over-heated economies (by printing even more of their own currency to buy dollars). So when the Fed’s bid ends and the fast traders go sellers, the global bond market is likely to provide a thundering demonstration of what “fragility” in the economic sense really means. Needless to say, it will be a lot more unpleasant than the 10% sales drop at Target, Ford, Home Depot, or Carnival Cruise Lines that might result from requiring American citizens to pay at least some portion of their government’s bills.

To be sure, the esteemed co-chairmen aren't known to be card-carrying Keynesians of the orthodox creed -- so they probably don't believe in the spending and tax “multipliers”, and for good reason. After a 30-year borrowing and money-printing binge, the US economy is freighted down with $52 trillion in public and private debt, which represents an excess burden of $30 trillion compared to the pre-1980 leverage ratio on national income. Under these conditions, an incremental dollar of debt-financed consumer spending catalyzes nothing. Like Cash for Clunkers and credits for new homebuyers, it pulls purchases forward on a one-time basis and then disappears without a ripple.

The explanation for Simpson-Bowles’ giant whiff on the one true here-and-now-deficit reducer -- letting all the Bush tax cuts including the AMT patch expire at an immediate gain of $300 billion -- is thus straight-forward: The Wall Street propaganda machine has vaccinated nearly the entire beltway population -- include its few brave denizens like the co-chairmen -- with a politically convenient strain of ersatz Keynesianism. Unlike the real thing, the latter holds that consumption spending on anything -- even by people who already have everything -- is to be embraced without question. On that meretricious point, of course, the questions should start, not end.

In fact, the question of serious revenue raising is never really addressed by the Simpson-Bowles plan -- not even in the by-and-by a decade from now when the current macro-economic “fragility” has presumably passed. Thus, compared to current policy, the co-chairman’s plan would raise the grand sum of $100 billion by 2015 or just over one-half of 1% of GDP. Yet any honest plan to close the nation’s massive structural deficit needs five times that much new revenue -- $500 billion per year or upwards of 3% of GDP.

Worse still, the co-chairmen’s plan gets to its paltry $100 billion revenue gain through the most convoluted route imaginable. It launches a frontal assault on $1 trillion worth of annual tax expenditures that are literally anchored to the K Street sidewalks in order to drop 80% of the revenue gain into tax rate reduction, not deficit reduction. Stated differently, the plan calls for the expenditure of nearly unfathomable amounts of political capital to shrink tax preferences for mortgage deductions, employer health plans, municipal bonds, and corporate loopholes of every shape and size. Yet it ends up with so little net revenue gain that taxes as a share of GDP would be only 19.3 % in 2015 -- a target lower than projected for the original Reagan tax cut way back in 1981!

This whole bizarre scheme was undoubtedly designed to win Republicans over to the task of revenue raising by hiding the broccoli in the garden salad. But that’s too clever by half because it also means that the 39.5% tax rate on the richest Americans that would become effective in 2011 would be reduced instead by one-third -- to 28% -- under Simpson-Bowles. There’s no way on earth so-called progressives are going to sit still for that.

And they shouldn’t because the world has long ago passed beyond the time and circumstances in which the Republican theology of low income tax rates was relevant. Back in the 1980s, when the nation had a comparatively clean balance sheet, an eager baby-boom population, and hadn't yet outsourced large parts of the middle class production and business service economy to Asia and the emerging markets, there was a compelling case for income tax rates geared to entrepreneurial advance.

But 30 years later our objective circumstances are a far cry from morning again in America. It's more like sundown, if the truth be told, owing to the massive debt deflation now underway and the imminent retirement of 80 million baby boomers who have saved comparatively nothing and will therefore consume massive fiscal transfers on their way off the stage. Under these conditions, the days of rising living standards and robust economic growth are long gone. What's relevant now is maintaining national solvency -- and that requires equitable burden sharing of the massive taxes due bill, which is relentlessly coming our way in the decades ahead.

The co-chairmen’s plan is equally hostage to the vestigial ideology of the Left. Spending for the retirement entitlements -- Medicare and Social Security -- will total nearly $1.5 trillion by 2015 but the plan includes less than $30 billion of net savings -- that is, just 2% of the preponderant core of the welfare state budget. To be sure, the plan includes considerable arm waving about raising the retirement age 40 years from now and the need for new health cost containment mechanisms. But what the plan doesn’t do is utter the two words that could actually make a material difference in the fiscal equation: “means test.”

The fact is, probably two-thirds of the $1.5 trillion in retirement entitlement spending goes to elderly who have virtually no private assets, pensions, or other income, and literally could not survive without the full measure of current law income and medical-care benefits. But the remaining $500 billion goes to the top quarter of the retired population, which does have private means -- and in the case of the very top ranks, very considerable private wealth. A properly structured means test that treated Medicare and Social Security as a combined cash equivalence, could efficiently, fairly, and reliably extract $100 billion, or 20%, of the spending that would otherwise go to the top quartile of the elderly. Such measures would make a difference in the here-and-now fiscal equation when the true fragility of the global bond market and monetary system is certain to be tested.

Just like in the case of the missing revenue-raising plan owing to Republican tax theology, however, the missing entitlement means test is attributable to the “social insurance” mythology held by the Democrats. But contrary to the latter, almost no beneficiary “earned” the benefits they are entitled to under current law. And the trust fund is a pure accounting artifact with $3 trillion in paper “reserves” that represent payroll taxes collected long ago and have been fully spent on general fund programs or squandered on farm subsidies, middle-class student loans, and bribes to Afghan tribal leaders, as the case may be.

Thus the social insurance myths are basically a cover for a pure fiscal operation that's essentially an intergeneration transfer scheme. Unfortunately, the benefits promises made to the baby-boom generation can't be kept without turning the generation still in the work force into virtual tax serfs. Undoubtedly, the co-chairmen choose to take a powder on the means-test issue in part to spare themselves of inane Republican lectures about “privatizing” this Ponzi scheme for those under 40. But at the end of the day, the Democrats are so fiercely dug in against means testing that they didn’t even try to raise the issue.

Finally, the co-chairmen also took a powder on the last big chunk of the budget -- the $1.4 trillion that goes to “discretionary” spending. To be sure, they propose to save about 12%, or $175 billion, by 2015 by means of various “caps” and “freezes.” But it doesn't take a commission and a whole regiment of beltway staffers to imagine a cap at an altitude of 10,000 feet above the budget nitty-gritty, where real programs live and fierce bureaucratic and interest group defenders are dug in behind nearly every dollar.

The fact is, $800 billion, or two-thirds of the discretionary spending, is for national security, including homeland security. A mere “cap” is an earnest wish and little more. The only thing that can come even close to the savings projected by the commission is a sweeping demobilization of the nation’s vast and far-flung military establishment. That means elimination of numerous army and marine divisions and air force air-wings; mothballing of dozens of navy warships and several carrier-battle groups; elimination of hundreds of bases and overseas facilities; and cancellation of a fair share of new weapons procurement programs currently in the pipeline.

The reality is that the days of policing the world and foreign policy adventurism of the type embodied in George Bush’s two unnecessary wars are over -- not just because such policies are wrong-headed but also because they're profoundly unaffordable. It would have been helpful, therefore, if the co-chairmen had said something to that effect. But in 59 pages of beltway mumbo jumbo, the reader won't find a single policy declaration that supports the magnitude of Pentagon shrinkage that will be necessary to restore fiscal solvency.

So forget the $4 trillion headline -- that’s just reflective of the old Washington game of projecting a decade’s worth of guesstimates into the foggy future. The truth is, in the here and now, where it counts and where the coming conflagration in the global bond and currency markets might have been forestalled, the co-chairmen’s plan amounts to an earnest pinprick and little more. But it’s not their fault. Instead, it reflects the degree to which the nation’s fiscal governance has fallen hostage to partisan ideologies that are utterly detached from the real-world conditions we face. It’s a certainty that the plan -- however it's finessed on Friday -- will be DOA in the new Congress. The stalemate now runs so deep that only a thunderous crack-up of the global financial system is likely to make any difference, and when that day of reckoning actually comes it will be too late for Washington to do anything about it.

As Americans continue to lose their homes in record numbers, the Federal Reserve is considering making it much harder for homeowners to stop foreclosures and escape predatory home loans with onerous terms.

The Fed's proposal to amend a 42-year-old provision of the federal Truth in Lending Act has angered labor, civil rights and consumer advocacy groups along with a slew of foreclosure defense attorneys. They're not only asking the Fed to withdraw the proposal, they also want any future changes to the law to be handled by the new Consumer Financial Protection Bureau, which begins its work next year.

In a letter to the Fed's Board of Governors, dozens of groups that oppose the measure, including the National Consumer Law Center, the NAACP and the Service Employees International Union, say the proposal is bad medicine at the wrong time. "At the depths of the worst foreclosure crisis since the Great Depression, we are surprised that the Fed has proposed rules that would eviscerate the primary protection homeowners currently have to escape abusive loans and avoid foreclosure: the extended right of rescission." Because the public comment period on the Fed's proposal is still open until Dec. 23, a spokesman declined comment on the matter.

But in a September passage in the Federal Register, the Fed said the proposal was designed to "ensure a clearer and more equitable process for resolving rescission claims raised in court proceedings" and reflects what most courts already require. Since 1968, the Truth in Lending Act has given homeowners the right to cancel, or rescind illegal loans for up to three years after the transaction was completed if the buyer wasn't provided with proper disclosures at the time of closing.

Attorneys at AARP have used the rescission clause for decades to protect older homeowners stuck in predatory loans with costly terms. The provision is also helping struggling homeowners to fight a wave of foreclosure cases in which faulty and sometimes-fraudulent disclosures were used. The violations must be of a material nature to invalidate a loan under the extended-rescission clause. To do so, homeowners — usually those facing financial problems or foreclosure — hire an attorney to scour their mortgage documents for possible violations regarding the actual cost of the loan or payment terms.

If problems are found, a notice of rescission is sent to the creditor, which can either admit to the alleged violation or contest it in court. Creditors that end up rescinding a loan are then required to cancel their "security interest," or lien, on the property. Once that occurs, the homeowner must then pay the outstanding loan balance back to the lender — minus the finance charges, fees and payments already made.

Dropping the lien provides homeowners with a defense against foreclosure and allows them to refinance to pay the outstanding loan amount. Critics say the proposed change by the Fed would render the rescission clause useless. The Fed proposal would require homeowners who seek a loan rescission through the courts, to pay off the entire loan balance before the lender cancels the lien.

"This, of course, would be almost impossible for most consumers to do because they can't come up with the money until they get out of the loan. And they can't get out of the loan until the lien is released," said Barry Zigas, director of housing and credit policy at the Consumer Federation of America. "None of us are quite sure what purpose is being served by this proposal or what prompted it."

The Fed's proposal is part of an ongoing effort begun in 2005 to review and update rules and guidelines for disclosure in the rescission process, said Kathleen Keest, the senior policy counsel for the Center for Responsible Lending. That effort, which includes a review and update of the forms used for rescission, pre-dates the housing-market meltdown and the recession, she said.

The Fed "believes this adjustment would facilitate compliance with the Truth in Lending Act," adding that the "majority of courts that have considered this issue" condition the release of a lien on a homeowner's ability to repay the balance. The Mortgage Bankers Association, the main trade group for the real estate finance industry, hasn't taken a position on the issue or submitted public comment to the Fed. But "we are inclined to support the direction the Fed is headed," said John Mechem, the MBA's vice president for public affairs.

Requiring homeowners to pay what remains of the original loan before a rescission can proceed is tantamount to a "verdict first, trial later" philosophy, Keest said. "It basically puts the cart before the horse," she said, adding that securing the "right to rescind determines how much you have to (pay)."

David Certner, the legislative policy director at AARP, which also has criticized the proposal, said rescission is an effective tool to make sure creditors follow the rules and are transparent about the true cost of loans. "It can help put off a foreclosure and give one the leverage in negotiating some other type of appropriate payment or settlement. It's a very powerful tool to help people stay in their homes," Certner said. He called the proposal "egregious."

Back in October the economic buzzwords had become “money printing” and “debt monetization”. Of course, at the time, the Fed was initiating their policy of QE2 and you’d have been hard pressed to find someone in this country (and around the world for that matter) who wasn’t entirely convinced that the USA was about to send the dollar into some sort of death spiral. QE2 was about to set off a round of inflation that would make Zimbabwe look like a cakewalk. And then something odd happened – the dollar rallied as QE2 set sail and hasn’t looked back since.

“If my theories prove correct it is likely that the dollar is well oversold and equities have become overextended on false hopes of a Fed driven economic recovery. This means the market is excessively concerned about inflation and we are likely to move closer towards our economic reality of disinflation with a higher risk of deflation than high inflation. If this is correct it means there is a fairly sizable air pocket beneath risk assets currently. Warren Buffett once said it is better to be greedy when others are fearful and fearful when others are greedy. I am currently fearful.”

Since then we’ve seen a 7%+ move in the trade weighted dollar and the smallest 12 month increase in the history of the CPI report. In other words, inflation remains non-existent. For the minority who understood how QE was actually going to impact the economy this was an obvious inefficiency at work (yes Eugene Fama, you are still wrong and this was real-time evidence of it). QE2 wasn’t inflationary and it never was going to be inflationary because it merely alters the term structure of outstanding government debt and nothing more. It is not money printing.

This was just one more opportunity for the fear mongering hyperinflationists to latch onto something. Even as Ben Bernanke himself explained that he was not printing money we continued to see aspiring Presidential candidates, talking heads and even bunny rabbits explain to millions how the Fed was destroying the value of the dollars in our pockets. This was not only irresponsible, but entirely wrong. QE2 is not inflationary in the least bit. It does not help the US government spend in the future. It will not cause a dollar crash. It’s just an asset swap. It’s an unusual form of the standard monetary operations that the Federal Reserve always performs. But monetary policy during a balance sheet recession becomes a blunt instrument. QE2 is perhaps the most misunderstood and irrelevant policy the Fed has ever embarked upon. Or as I prefer to call it – the greatest monetary non-event.

We are constantly being bombarded by fear mongers about the likelihood of hyperinflation in the US economy because of what is considered to be the irresponsible use of monetary policy, chiefly in the form of Quantitative Easing (QE) that might or might not be working. Monetary policy is not producing the desired linear modulation of economic output, and I've demonstrated why this is true. But, I'm not the tiniest bit worried about hyperinflation. It's a fairy tale composed by those who don't understand the psychological and philosophical basis of money. Hyperinflation is not really inflation at all. Rather, it's the sudden and exponential loss of Monetary Obedience to the currency.

There won't be any hyperinflation unless we lose Monetary Obedience and there's not much chance of that happening any time soon. Monetary Obedience is the term I have coined to explain that delicate equilibrium established among market participants at which their need for conducting the ordinary monetary exchanges of life counteracts the otherwise human need to nullify an irrational concept. Because, indeed, fiat money is exactly that, an irrational concept. Still, we're nowhere near the point of equilibrium that the Weimar Republic experienced.

If hyperinflation were possible in the US, we'd have already experienced it, because the dollar has long been worthless.

Pull out a USD bill of any denomination and place it before you. Look at it and ponder its worth. It has no conventional value whatsoever. The only reason it has value is because you are commanded to accept it, and given the opportunity to demand that it also be accepted as legal tender for debts incurred in the US. Monetary Obedience derives from the power of the US to command that acceptance.

The hyperinflation fear mongers often point to the Weimar Republic's collapse after WWI, when wheelbarrow-full loads of old marks were needed to exchange the massively deflated currency for just one new mark. But that wasn't because of the acceleration of prices of goods and services in terms of the equivalent labor of exchange for obtaining these goods and services, but rather because the German government no longer had the power to enforce monetary obedience to the mark.

The fiat money used in modern societies is not money at all, but rather a force, a facilitating force controlled by the central bank. Urban, labor-specialized modern culture could not function economically otherwise.

Let me illustrate in this manner. Assume that a giant and wonderful event that produced all the elements of a bazaar will be held in a sort of open-air stadium with row after row of seats and stalls extending into infinity, such that no person attending the event could avoid exchanging goods or services with other attendees. However, persons not attending would have no opportunity to exchange their goods or services at all.

In order to attend the event, attendees must bring value for the purpose of exchange, either 1) - as mechanical or intellectual labor, or 2) - as commodities, finished or unfinished goods. These items of intellectual or tangible value they will bring in whatever quantity and quality they are capable of producing.

However, one additional requirement must be met before attendees are allowed through the entrance gate to the bazaar. They must have a small black marble both to enter and also that must be shown in any exchange made, regardless of the type of exchange. It doesn't have to be exchanged itself, but must in all cases be shown by both (or all) parties conducting any exchanges of value.

The black marble has nothing to do with the exchanges of value. These are ultimately conducted in the core basis of all money, and that core basis is labor, intellectual or mechanical. From that labor all items of value are produced, all goods and services of every sort. In this sense the black marble is inert. However, it must be shown at every exchange, and in that sense it is a facilitating force.

Fiat currency is that black marble. Likewise, it is merely a facilitating force and is entirely inert in regards to the exchanging of all values which are instead conducted in terms of the pricing of labor, whether intellectual or mechanical. Possessing the black marble only permits the exchanges and has nothing to do with their values. Monetary obedience occurs at the bazaar because the attendees obey the requirement to show and present the black marble.

Because of this obedience, all values of exchanges are eventually conducted, like in human language, in a parent tongue of familiarity, that being in terms of the black marble, even though market participants subconsciously understand all values derive from the pricing of labor.

If ever an event or chain of events causes the loss of monetary obedience to the black marble, then it is as though the language of an entire society could be forgotten in an instant, destroying the familiar mechanism in which the ultimate values of exchanges are priced, in terms of what is the core basis of all money, intellectual or mechanical labor. When no mechanism exists to facilitate that pricing, the bazaar is reduced to pandemonium as participants frightfully search for some new facilitating force to replace it.

The United States is probably at the peak of its power and influence (debating the point is not my purpose here). It has the power to enforce monetary obedience of the black marble, and it isn't at risk of losing it any time soon. Fiat currency is simply an inert facilitating element of economic exchange and has nothing to do with its pricing.

Small investors aren’t just feeling bullish – they’re acting bullish. According to the AAII‘s November allocation poll small investor equity allocation reached an 11 month high. Charles Rotblut at AAII elaborated on the details:

“Individual investors’ allocations toward stocks and stock funds reached an 11-month high of 62.3% last month, according to the November AAII Asset Allocation Survey. The 2.1 percentage point rise represented the fourth consecutive increase in the amount of portfolio dollars allocated to equities. The historical average is 60%.

Bond and bond fund allocations were essentially unchanged at 21.8%. This was the 10th time in 11 months that fixed income allocations have exceeded 20%. The historical average is 15%.

Cash allocations fell 1.8 percentage points to 15.9%. This is the lowest amount of portfolio dollars held in cash since March 2000, when stock allocations reached 77%. The historical average is 25%.”

Naturally, small investors are chasing the rally. They were very bearish at the bottom and now remain only mildly bullish after the rally. At 62.3% the equity allocation is just above its historical average of 60%. At 21.8% bond allocations are substantially above the average of 15%.

Shawn Slonsky's children know by now not to give him Christmas lists filled with the latest gizmos. The 44-year-old union electrician is one of nearly 2 million Americans whose extended unemployment benefits will run out this month, making the holiday season less about celebration than survival. "We'll put up decorations, but we just don't have the money for a Christmas tree," Slonsky said.

Benefits that had been extended up to 99 weeks started running out Wednesday. Unless Congress approves a longer extension, the Labor Department estimates about 2 million people will be cut off by Christmas. Support groups for the so-called 99ers have sprung up online, offering chances to vent along with tips on resumes and job interviews. Advocacy groups such as the National Employment Law Project have turned their plight into a rallying cry for Congress to extend jobless benefits.

Things used to be different for Slonsky, who lives in Massillon, Ohio. Before work dried up, he earned about $100,000 a year. He and his wife lived in a three-bedroom house where deer meandered through the backyard. Then they lost their jobs. Their house went into foreclosure and they had to move in with his 73-year-old father. Now, Slonsky is dreading the holidays as his 99 weeks run out. "It's hard to be in a jovial mood all the time when you've got this storm cloud hanging over your head," he said.

The average weekly unemployment benefit in the U.S. is $302.90, though it varies widely depending on how states calculate the payment. Because of supplemental state programs and other factors, it's hard to know for sure who will lose their benefits at any given time. Congressional opponents of extending the benefits beyond this month say fiscal responsibility should come first. Republicans in the House and Senate, along with a handful of conservative Democrats, say they're open to extending benefits, but not if it means adding to the $13.8 trillion national debt.

Republicans maintain they are willing to instead use unspent money from Obama stimulus programs to foot the bill: a $12.5 billion tab for three months. Democrats argue that the extended benefits should be paid for with deficit spending because it injects money into the economy. The GOP didn't pay any political price for stalling efforts earlier this year to extend jobless benefits that provide critical help to the unemployed – including a seven-week stretch over the summer when jobless benefits were a piece of a failed Democratic tax and jobs bill. But bad publicity because the benefits end over the holidays has long been forecast.

Democrats hope that a final deal on extending Bush-era income tax cuts to the wealthy and middle class will include an agreement from Republicans to another extension of deficit-financed emergency unemployment benefits. U.S. Rep. Mike Pence, R-Ind., the No. 3 Republican in the House, said extended benefits must be paid for now, rather than later, if they're going to win support from fiscal conservatives. "The fact that we have to keep extending unemployment benefits shows that the economic policies of this administration have failed," said Pence spokeswoman Courtney Kolb.

Labor Secretary Hilda Solis told The Associated Press on Wednesday that declining to extend the benefits would be a mistake for Congress. "This is a bad way to start off the new, incoming season of new politicians that said that they wanted to make government work for people in a better way," she said.

Even if Congress does lengthen benefits, cash assistance is at best a stopgap measure, said Carol Hardison, executive director of Crisis Assistance Ministry in Charlotte, N.C., which has seen 20,000 new clients since the Great Recession started in December 2007. "We're going to have to have a new conversation with the people who are still suffering, about the potentially drastic changes they're going to have to make to stay out of the homeless shelter," she said.

Forget Christmas presents. What the 99ers want most of all is what remains elusive in the worst economy in generations: a job. "I am not searching for a job, I am begging for one," said Felicia Robbins, 30, as she prepared to move out of a homeless shelter in Pensacola, Fla., where she and her five children have been living. She is using the last of her cash, about $500, to move into a small, unfurnished rental home. Robbins lost her job as a juvenile justice worker in 2009 and her last $235 unemployment check will arrive Dec. 13. Her 10-year-old car isn't running, and she walks each day to the local unemployment office to look for work.

Jeanne Reinman, 61, of Greenville, S.C., still has her house, but even that comes with a downside. After losing her computer design job a year and a half ago, Reinman scraped by with her savings and a weekly $351 unemployment check. When her nest egg vanished in July, she started using her unemployment to pay off her mortgage and stopped paying her credit card bills. She recently informed a creditor she couldn't make payments on a loan because her benefits were ending. "I'm more concerned about trying to hang onto my house than paying you," she told the creditor.

Ninety-nine weeks may seem like a long time to find a job. But even as the economy grows, jobs that vanished in the Great Recession have not returned. The private sector added about 159,000 jobs in October – half as many as needed to reduce the unemployment rate of 9.6 percent, which the Federal Reserve expects will hover around 9 percent for all of next year.

For people like JoAnn Sampson, decisions made by Congress can seem very distant. The former cart driver at U.S. Airways in Charlotte and her husband are both facing the end of unemployment benefits, and she can't get so much as an entry-level job. "When you try to apply for retail or fast food, they say 'You're overqualified,' they say 'We don't pay that much money,' they say, 'You don't want this job,'" she said. Sampson counts her blessings: At least her two children, a teenager and a college student, are too old to expect much from Christmas this year.

Wayne Pittman has been telling his family not expect much for Christmas either. The 46-year-old carpenter, along with his wife and 9-year-old son, have stopped going to movies and restaurants and buying new clothes. With his $297 weekly checks gone, holiday gifts are definitely out. "It's not in our budget," Pittman said. "I have a little boy, and that's kind of hard to explain to him. To try to let him know, certain things he's not going to be getting."

In Washington, the agenda has long since moved on from bailing out megabanks to figuring out how to stop paying for things that regular people need -- luxuries like health care, retirement benefits and unemployment insurance. In the suburbs of Denver, Anthony Roebuck and his family find themselves confronting an action list that seems cruelly divorced from the proceedings in the nation's capital: They have to figure out how to keep the heat on through the Colorado winter now that his unemployment check has run out.

The latest extension of emergency unemployment benefits expired on Tuesday, as a dysfunctional Congress let the deadline go without striking a deal to keep the money flowing. That put Roebuck -- who drew his last check on Monday -- among the two million or so unemployed Americans facing the imminent loss of their benefits between now and the end of the year.

A sheet metal worker by trade, Roebuck, 44, is accustomed to earning his own way through the force of his hands. Since May, he and his family have subsisted on his wife's paycheck from her job as a university administrator, plus a nearly $500 weekly unemployment check. They slashed away at their grocery bill, cutting out non-essentials such as the fried snacks favored by his 15-year-old son. They traded in their late-model Jeep Cherokee for an elderly Dodge sedan. They quit going to church on Sunday to save the gas money required to get there.

Now, the math is set to get uglier still, as they contemplate how to run the household minus his unemployment check -- a situation that seems not only impossible but also unfair. How could there have been so many billions for Wall Street, so much room to lower taxes for people with golf memberships and country houses, yet a $500-a-week check to help him pay the rent while he looks for another job suddenly threatens to bankrupt the nation? "It's like a gut shot," he says. "I get really upset when I think about it. I have to watch my words or I'm liable to get profane."

Perhaps even more disturbing than the callousness governing the political process is how so many powerful people in Washington are now competing to take credit for depriving the economy of meaningful relief. In the political calculus of the moment, exacerbating the troubles of the most vulnerable has become a pragmatic way to curry favor.

Republicans in Congress have held up the extension of unemployment benefits and are also demanding an extension of the tax cuts President George W. Bush handed out to the wealthiest Americans. They are selling this as a stand against fiscally reckless spending and oversized government -- a form of pandering that poses dire consequences to the economy.

Unlike wealthy people handed tax cuts, laid-off workers receiving unemployment checks tend to inject nearly all of that money directly into the economy, leaving their dollars at the local supermarket, the hardware store, and the auto repair shop, supporting jobs for people who work at those places. Cutting off those checks deprives the economy of cash just as the market is showing tentative signs of improvement.

Meanwhile, the Obama administration has become so captive to the budget-cutting-as-progress mantra ruling Washington that it is taking a victory lap for diminishing the costs of the federal bailouts -- even as the savings come at the direct expense of the only piece of its rescue package that was designed to aid regular people: its anti-foreclosure program.

Earlier this week, the non-partisan Congressional Budget Office released an analysis showing that the administration would spend only about $12 billion of the $50 billion that had been dedicated under the primary bailout funds for its signature anti-foreclosure program. This, even as the foreclosure crisis shows no sign of abating.

When President Obama announced the program amid great fanfare early last year, he declared that help was on the way for somewhere between three to four million American homeowners who would now be given a chance to lower their monthly payments. But through October, fewer than 500,000 distressed homeowners were making lower payments under the program.

The reasons for this abysmal record are many: From its inception, the program has been a fiasco. The giant banks that send out monthly mortgage bills and collect the money for the investors who generally own the notes have repeatedly lost documents sent in by applicants seeking relief. They have forced troubled homeowners to endure interminable stints on hold, waiting to be handed the latest conflicting instruction from another bank representative.

They have been told that the good people at Bank of America or J.P. Morgan Chase -- to pick on two giants -- would love to give them a break, but the greedy investors who own their mortgages will not go along, even though the opposite is often true: The clueless investors, who would be better served by loan alterations that cut their losses, are kept in the dark while the big banks drag out the foreclosure process, capturing fees by funneling orders for fresh appraisals and title searches that they funnel through their own subsidiaries.

And even the supposed success stories-- the homeowners who have navigated through the rat's nest of ineptitude and deceit to come out with loan modifications -- do not represent a fix to the fundamental problem. Lower payments have come through lowering interest rates and extending the life of the loans, not by writing down the size of the outstanding balances. With millions of people now owing more to the bank than their homes are worth, many have given up and stopped mailing checks to their lender.

Many housing experts have argued that the only effective way to curb foreclosures would be to force the mortgage companies to write down loan balances. But the Obama administration, led by Treasury Secretary Timothy Geithner, has consistently shot down the idea of forcing the banks to swallow write-downs, because someone would have to pay the costs. Perhaps the banks, perhaps the taxpayer, and probably both.

"This is a conscious choice we made, not to start with principal reduction," Geithner said late last year, while testifying before a panel convened by Congress to keep tabs on the federal bailouts. "We thought it would be dramatically more expensive for the American taxpayer." This, from the same man who played a leading role in putting hundreds of billions of dollars in taxpayer money on the line to rescue Wall Street.

In an interview Wednesday, Treasury's assistant secretary for financial stability, Tim Massad, said the department still planned to expend the full share of bailout funds on its anti-foreclosure effort, disputing the Congressional Budget Office's projection. But he acknowledged that, from inception, the administration's program was limited by a reluctance to spend taxpayer funds too aggressively. He said Treasury was also confined by Congress in not being able to force mortgage companies to give homeowners relief. The result: a voluntary program that depends upon taxpayer-financed cash incentives for banks, one that has moved too slowly. "We're not getting as many mods as we hoped," Massad said, referring to loan modifications. "But we still have two years."

These days, this seems like the only policy imperative with currency in Washington: keeping the lid on costs, and never mind the needs of a nation still grappling with the terrible effects of the recession. Abdication of responsibility has somehow become a political virtue, a sign of fiscal toughness and even moral rectitude.

This is the spirit at work in the deficit-cutting plan released Wednesday by the president's bipartisan commission, which takes aim at Social Security and Medicare spending yet still lowers tax rates. Contrast the new austerity for retirees, laid-off workers, and homeowners facing foreclosure with the unbridled generosity lavished upon corporate American during the worst days of the financial crisis.

As the Federal Reserve on Wednesday reluctantly opened the books on how it distributed some $3.3 trillion in aid during the crisis, it became clear that the central bank was basically taking over lousy investments from all comers. Even foreign banks were able to avail themselves of the Fed's cash, selling toxic assets to the central bank at prices the market never would have paid.

Such was the necessary price of staving off the financial apocalypse that might have resulted had the wrath of the market been allowed to carry on -- this, we are told repeatedly by the people in charge. The money had to be handed out swiftly and indiscriminately. Fair enough, maybe so, but we have also been told that, eventually, the repairing of the financial system would lead to the healing of the broader economy, and then those facing foreclosure because they are out work would no longer have to worry. Then the millions of jobless people would see their lives restored.

And not only has that not happened, but each time the unfortunate human leftovers of the recession have found themselves in need of help just to keep the lights on, we are told (by the same people who spared no expense for the banks) that there is nothing left to give them. Now is the time to get serious about putting our fiscal house in order. The bailout window is closed.

Anthony Roebuck does not want a bailout. He wants a job. He spent the summer in a state-financed training program, learning how to construct solar and wind power farms. He is willing to work in renewable energy, though those jobs pay as little as $8 an hour compared to the $23 an hour he brought home from his last position, installing heating and air conditioning systems. And still, no one wants him, knowing that he will up and leave once the higher-paying jobs come back.

He has been hitting construction sites, two and three a day, in search of work. And still he is unemployed. He was offered a possible job in Utah, but moving there would entail giving up his wife's paycheck and pulling his son out of high school. So he is instead becoming expert in a new facet of the American experience, shuffling bills he cannot pay and hoping better days come soon. "Until I can get to work we're going to be juggling between the light bill and the heat bill," he says. "What can be late? What can't be late? What can we skip?"

Spain and Ireland are set to launch large-scale privatisation programmes as they fight to preserve market faith in their turnaround plans.

The Spanish government is looking at auctioning stakes in its national lottery operator and airports, while Ireland will look at privatisations in its electricity and gas sectors as part of a joint European Union and IMF bail-out package agreed on Sunday. News of the privatisation plans came as it emerged that the eurozone bail-out fund will next month begin issuing debt on behalf of embattled member states. Any bonds sold would be the first issued in the name of all currency pact members.

Speculation had grown over the last week that the European Central Bank (ECB) was considering taking drastic steps to shore up market confidence in the single currency, with rumours spreading on Wednesday that the ECB had already begun buying Irish bonds to stabilise what had looked to be weakening faith in their value.

The rally in European asset prices was subsequently driven by strong hints from Jean-Claude Trichet, president of the ECB, that its government bond purchase programme was likely to be significantly expanded, with an official annoucement expected as early as Thursday. In a show of solidarity with Europe, US officials told Reuters that the government was ready to commit more funds to the European Stability Facility (ESF) through an expansion of the money it has already pledged through the IMF.

"We will certainly support the IMF in these circumstances," an unnamed US official said. "In May, it was Greece. This is Ireland and Portugal. If there is global contagion that's a huge problem for the global economy." The US is the biggest shareholder in the IMF, which has already contributed €250bn (£210bn) towards the ESF. Analysts appeared on Wednesday to be comforted that Europe and the US were moving to decisively deal with the growing crisis. "We are 100pc certain the euro will stay," said Arturo de Frias at Evolution Securities.

"The reason for our certainty is simple: many of the German banks [and the French and the UK] would be completely bust if the euro goes. We are even tempted to call it 'the Merkel put'." Fixed income fund manager Gerard Fitzpatrick at Russell Investments said that for those with the nerve, current market valuations of European government debt could make for big profits. "We're currently in a classic fear environment, as sellers run to the door. Such classic investment scenarios have rebounded positively in the past. It will be no different this time," he said.

Fixing the currency: workmen carry out repairs on a euro sign outside the European Central Bank headquarters in Frankfurt Ireland’s banks are among the most exposed to some of the other weaker eurozone nations, in spite of the industry’s tiny network of foreign operations. According to analysis of the most recent Bank for International Settlements data on overseas loan exposures, Irish banks together make them the fifth-largest lender in the world to Italy, with total outstanding credit of $40.9bn.

Irish banks are also among the leading lenders to Portugal, Greece and Spain – ranking fifth, fifth and seventh – even though Ireland’s economy is only the 15th biggest in the European Union. The data highlight concerns that the interrelationship between the troubled nations of Europe is more deep-seated than many have realised, suggesting that the risk of contagion is high. The figures cover the banks’ exposure to other countries through lending to banks, companies and governments.

The interconnectedness of Ireland’s banking system to other peripheral economies is exacerbated by some foreign banks’ use of Dublin’s financial centre as a low-tax conduit for business. Depfa, the German bank that is now part of nationalised Hypo Real Estate, accounts for a large chunk of the credit flows between Germany, Ireland, Italy and Spain.

Ireland’s banks were bailed out at the weekend with a €35bn ($46bn) package of support, as part of a broader $85bn joint intervention by the European Union and the International Monetary Fund. Yields on Irish debt and that of other peripheral countries rose after the bail-out, in stark contrast to the aftermath of Greece’s rescue. Irish 10-year bond yields rose by 15 basis points on Monday and Tuesday, while Spanish gained 33bp and Italian 25bp. Only on Wednesday, as hopes rose of fresh intervention by the European Central Bank in bond markets, did yields start to fall with Ireland dropping 41bp, Spain 21bp and Italy 15bp.

However, markets remain nervous that other eurozone countries are fundamentally troubled and are not convinced that the terms of the Irish bail-out do anything to address the broader concerns about the eurozone. “We do not think this will bring an end to concerns around the peripheral economies,” analysts at Barclays wrote. “And we think especially Portuguese and Spanish sovereign and corporate debt will continue to be watched carefully by the market.” Japanese banks are the sixth biggest lenders to both Ireland and Italy, while US banks are highly exposed to Ireland and Spain, according to the BIS data.

House prices would have to fall by more than a fifth from their current level to revert to their long-term average affordability of four years’ average earnings. Even after the modest reductions announced by Nationwide Building Society today, the typical house price equals more than five years’ earnings.

So would-be first time buyers frozen out of home ownership by the credit crunch and most lenders’ demands for at least 20 per cent deposits may draw comfort from the prospect of affordability reverting to its long term average – as measured by Nationwide since 1974. This data shows that property was most expensive in 2007 when the average house price equalled more than 6.3 years’ earnings.

To put that in context, the ratio briefly exceeded 4.9 at the top of the 1980s housing boom but fell to little more than 2.8 at the bottom of the subsequent slump in 1996. So those who hope that house prices will fall can point to historical precedent to suggest recent reductions are just the beginning of a trend. But Nationwide economist Martin Gahbauer said there are significant differences between the current situation and the past: “Although the house price to earnings ratio is currently above its long-run average, it is possible that the equilibrium level of the house price to earnings ratio is higher than the long-run average level would suggest.

“Factors that could argue in favour of a higher equilibrium level are a much lower level of real interest rates than in the past, and a higher proportion of households with more than one earner. If one assumes that the long-run average is the equilibrium and that the ratio will eventually revert to its mean, this would imply house prices rising by less than average earnings over a period of time. It does not mean that house prices need to fall abruptly.”

Melanie Bien, a director of independent mortgage broker Private Finance, added: “Historically low interest rates are proving to be a real blessing for homeowners. Many are enjoying extremely cheap mortgage rates which mean that higher living costs and the reduction in income faced by some homeowners are not as disastrous as they would otherwise be.

“Most forecasters agree that interest rates will not rise until next summer at the earliest, and then at a slow rate. However, borrowers should not be complacent but consider how they will afford their mortgage once rates start to rise. Taking out a fixed rate now for five years, rather than sitting on your lender’s standard variable rate, might be a sensible option if you are worried about losing your job or budgeting.

“House prices may have fallen again in November but this seems to be more of a gradual slowdown than a crash. There is still plenty of pent-up demand from buyers keen to purchase a home but who can’t get a mortgage. They are being forced to rent for longer so while first-time buyers may be struggling to get on the housing ladder, landlords who can access the finance will find there are plenty of opportunities for them, with the prospect of rising rents and yields.

“The number of repossessions is at modest levels but they could rise once government spending cuts filter through and more jobs are lost. It is important that lenders are understanding and continue to show forbearance, while the government ensures that there is help for those who are struggling. Tough times are ahead – make no mistake.”

David Hollingworth, of London & Country Mortgages, agreed: “There are clearly some tough times to come with further redundancies likely to have an impact in consumer confidence. “Overall, the market looks set to remain flat at best until consumer confidence begins to return. Low interest rates remain a positive for potential buyers although much will be dependent on the level of deposit that they can put down.

“Current expectations on interest rate rises would suggest that we will not see any movement until well into next year or even beyond that. Clearly an increase before that would knock buyer confidence in a fragile housing market.”

Nine out of 10 people have run up unsecured debt and many fear they will never be able to pay back what they owe, a survey has claimed. Around 89pc of people aged between 18 and 35 said they owed money on a credit card, loan or overdraft, the research showed.

A third of people admitted they did not think they would ever be debt-free, 54pc of whom said they would always need to borrow money in order to fund the lifestyle they wanted. One in five of these people also claimed they were not worried about the possibility of their debts being passed on to their next of kin if they died before they were repaid.

Just over half who owed money said they did not feel in control of their debt, with 8pc admitting they had needed to ask for help with repayments from a friend or family member. Eight out of 10 people also told the research for discount website MyVoucherCodes.co.uk that they thought it was too easy to borrow money through their bank or on credit cards.

Farhad Farhadi, MyVoucherCodes.co.uk's personal finance expert, said: "The majority of British adults owe money in some way, shape or form, but to see that almost a third think they'll never be free from debt is quite alarming. "When borrowing money from any source, how you are going to repay it should always be in the back of your mind. "A lot of people don't really think about the consequences of borrowing money and it can be easy to get complacent, but keeping it all under control should be a priority from the off. Only borrow what you really think you can afford to pay back."

The Tragedy of Unmanaged Commons is the more accurate name, for the Tragedy of the Commons doesn't exist. Elinor Ostrom won a Nobel Prize (in economics) for her work on this.

Here is a paper about the Maine lobster fishery that studies how the fishers self-organize to prevent overfishing, and maintain the fishery in a healthier state than the Federal Gov't was able to do. Ostrom's work studies many cases of this.

Well-managed commons are all around us. You can't build a bridge by giving every driver a dollar. You must manage common wealth to marshall common resources.

Universal medicine is another example. Canada's Managed Commons Universal Medical System produces lower infant mortality than "The best system in the world" next door.

"The fortunate in the developed world have lived through an unprecedented period of wealth and relative peace, hence longer term concerns have made it on to the political agenda. Concern for the environment and for other species always peaks in times of plenty, as the discount rate falls and people take on broader and longer term concerns. Unfortunately, this state is unlikely to last, meaning that the environment is not likely to retain its current level of protection, and that level is already insufficient to prevent continued degradation of our natural capital."

I've realized that I've been fortunate to work in the environmental field - only because of cheap houses built with cheap materials and labour (global wage arbitrage)bought by people with access to cheap credit. The municipality then taxes the homeowner and pays me my salary (so that I can go buy a house).

The global economic depression trumps peak oil, climate change and the 'green jobs' movement. A move towards self-sufficiency, independence, permaculture, and community can help in this transition. We just need to make that leap in a new direction and get out of the rat race...

Brad said "We just need to make that leap in a new direction and get out of the rat race... "

Unfortunately, most people do not want to readily get out of the rat race. They enjoy flying to their exotic vacations, buying inexpensive clothes and plastic trinkets shipped from Asia, racing gokarts, eating at fancy restaurants (or fast food), driving to wherever.

Stoneleigh said ... "We need to do whatever we can to blunt that over-reaction for the sake of holding our societies together in a highly uncertain future."

This site is the best on the bloggsphere because it repeats the message in so many ways. Eventually, even those worrying about their next meals will be able to understand.

Unfortunately, I'll pick out one phrase, it shows too much optimism.

"... holding our societies together"

I feel that it should be toned down to "... adapting to the changes in our society"

Also,

"... the advice in The Automatic Earth lifeboat primer - on reducing debt, holding cash, gaining some control over the essentials of one's own existence and, above all, building community - is the best way of taking enough mental pressure off in the future to enable people to hang on to an appreciation for the longer term."

My biggest worry is that I must find a way of passing on that knowledge to the next generation so that it will then be passed on to the following generations.

I think the best way to pass such information on to future generations is to live it, with them.

I worked in IT for 2 years. I know a lot about technology. I also believe that our obsession with cooler technology (often couched in the semi-truths of "innovation" and "progress") leads us to do things and act in ways that are counter to our better mental and physical well-being. Anyway...

As I build my humble, sustainable, 300 square foot, home in the woods of Northern Vermont, my goal is to have my children live with me for several months during the year. (They live in central Vermont with their wonderful and amazing mom, 2 hours south of my little wooded lot.) During this time we, together, will live quietly, non-greedily (I hope), non-consumptively, etc.

Perhaps this ios the best way to pass the information along. Perhaps those of us with 13 acres wooded lots in rural areas should invite people from the city to come and live quietly for a time with us. Maybe they too will come to find a world without cellphones and cable T.V. and Walmart as far more sane than the one in which they toil and suffer.

Let me try my talon on the deflationary, multiple claims idea. I don't see it so much as someone selling the same house to 20 people, not that the Wall Street scumbags didn't do that. It's more like dominos falling. You get credit from the lumber yard to build that extra room because you have had a steady job for 15 years. The lumber yard gives your credit to the carpenter for the same reason. His ex-wife spends the alimony she expects on new lingerie from Victoria's Secret which uses the money to pay its senior bond holders. So when you lose that job and stiff the lumber yard, it sets up a concatenation of people unable to pay other people what they owe them, all of whom think they have a claim to your Lost Wages (Las Vegas as Steely Dan would put it.) The example that I am giving doesn't even involve the leverage of the banking and shadow banking system where these claims get multiplied by 10 to the second or third power through fictitious and virtual money.

So who takes the hit for your inability, despite your best intentions, of not paying your lumber bill? In good times the lumber yard, the first domino, would take the hit as we all expected some bad receivables. But when they reach a critical mass, the whole system blows up. Everyone passes it down the line. Nobody trusts anybody, and extending credit is one part greed and three parts trust.

I was in the bulk fine chemical import/export business back in the early 80's when prime broke 16% under Volker. (That was before I traded in my three piece suit for a gold plated Sawzall). I remember everybody trying to pay their creditors as slowly as they possibly could. An interest rate of 18-20% created a real liquidity crises. Normal terms were net 30 days in that business. The big boys like Roche and BASF saw it as a great opportunity to drive us pissants out of business by giving our customers 150 days.

As to emigrating. It's not all a bed of roses to say the least and I do have a single kid (36) in NYC. I just saw the false flag 9/11 operation, which of course allowed two wars based on total lies and the trashing of the Bill of Rights under the "Patriot Acts I & II (all related simply by coincidence, of course), just to be more than I could stomach. And as a bit of a student on the Third Reich, I saw the handwriting on the wall. But not everyone, only a minority, can leave without going into refuge status, or leave their family, friends, and community. Everyone's milage must and will vary. It's just that I literally cannot imagine the USA not being in a state of total jackboot hard fascism, KBR concentration gulags and all, in less than 5 years. I regard myself as lucky and also glad I lived low on the hog and saved when I could. Despite a lot of what would pass for rampant poverty in the little postage stamp of semi-rural AR which I planted myself in this spring, I can say without a moment hesitation, that the average person here is many multiples times happier than the USA. The culture here rally adores their child, and more interestingly, other people's children. Saw the following on the TV news last week:

Two young women go into an auto mechanics shop with a pistol and steal his drill. After they leave, the mechanic discovers that they had forgotten a small infant they were carrying. He picks up the baby, and runs around the neighborhood trying to find its home. Neighbors eventually lead him to the grandmother who takes back the baby and gives him back his drill. The police didn't press charges despite the fact that unlicensed pistols here are a serious felony.

The discount rate (set or announced by a central bank depending on your brand of economic theory), is the base rate for lending money. The rate that one lends money is dependent of the one's optimism toward the future. The more optimistic, the lower the rate.

Greenpa,

Nigeria going after Darth Cheney for corruption reminds me of Robert's Forward's wonderful novel, Dragon's Egg, which described day-to-day life on the surface of a neutron start pulsar.

When I read so many of the "hard luck cases", I think to myself, "I never made that much money in my life" and I'm in same boat as many millions of others. I saw the folks that made that much money, saw the boats, the cars, the 4x4s, the pensions, the benefits and all the other perks that went with it. I watched government salaries, pensions and benefits spiral out of control. I watched the union workers, 2-3 on the job of one. Two decades ago, I knew this had to end. Everywhere things were simply too bizarre to coninue. The whole time I knew it would be the biggest fit pitching I ever saw when it ended.

The thing that continues to amaze me in the present fit pitching is, virtually, no talk of the military which is one massive welfare program. Out of control salaries, benefits and pensions at every level. I think the latest fighter, F-35, is something like 125 million a copy. To drop bombs on a man on a dirt bike with an AK-47 on his back. What to I hear, not a whisper. Sacred cow folks, sacred cow.

I think this is shoddy reporting. My understanding is that an executive administration or department can change a **regulation** by going through a certain procedure which begins with publishing the proposed changes in the Federal Register and allowing a comment period. However, only Congress can alter an **act** which is just another name for a law. The Fed is not even an executive department like treasury, being a private corporation. So, can the Fed revoke a law by going through a regulation changing process? Mr. Pugh macerated the fat without touching the bone.

In economics discount rates and interest rates are modeled as an exponential function; they grow or decay forever at the same rate. Cognitive psychology and neuroscience have found that human discount rates are hyperbolic; they decline steeply at first then less steeply approaching an asymptotic level.

The biological reason for hyperbolic discount rates is a legacy of evolution. The limbic system handles situations in the here and now and it values immediate rewards. The prefrontal cortex coordinates higher level cognitive abilities and it computes the value of future rewards in a roughly rational way.

The limbic system also manages threat evaluation and response, energy conservation, and mating behavior. It is also known as the reptilian brain. It is part of our core survival management system on a primal level.

As issues of survival become more important or immediate the limbic system becomes more engaged and discount rates fall, the us vs them circle contracts, and the prefrontal cortex becomes less involved in decision making.

You can manage this relationship to an extent by awareness and training. Meditation, exercise, and the development of skills all help to put the prefrontal cortex in the driver's seat. Understanding how your brain works also helps one to manage it better. There are some good resources available out there. Google tech talks has quite a few. There are also several blogs and scholarly articles.

"...something about dutch consumer debt increasing by a crushing 25% this year... What would be the normal parameters for yoy fluctuation of this metric in non debt-deflation periods?" - December 1, 2010

In the U.S., according to the Fed, in 2005 it was 5%, in 2006 it was 4%, in 2007 it was 6%, and in 2008 it was 2%.

Excellent piece. So much of human endeavor and behavior is based on expectations. It’s the foundation of investing, and any other human activity with potential long-term consequences: education, work, marriage, procreation, etc.

Uncertainty is always a factor. This is why prices for equity investments represent the discounted value of expected future earnings. It’s partly why lenders charge a fee in the form of interest, and require collateral. It’s also why some people even sign prenuptual agreements before saying “I do.”

A certain amount of uncertainty is acceptable (because we can’t avoid it); and with the proper safeguards designed to minimize–-as much as possible––the potential downside, we can live with uncertainty and get one with life, “love”, and business.

As you point out, it’s when uncertainty operates on a shorter and shorter horizon is when aberrant or harmful human behavior can take hold. Fraud, theft, corruption, indifference, indolence. And in the extreme, murder.

Disproportionate uncertainly leads to disproportionate fear. Once fear becomes the prevailing zeitgeist, truly terrible things can happen (not least of which is the manipulation of fear into hate) and collapse can easily become a self-fulfilling prophecy.

We’ve been here before. I think the way to avoid the ultimate consequences of uncertainty and fear is to mitigate it by taking actions to gain control of the situation.

One way (I’ll call it the “Retreat and Rebuild” option) is to exit the system before it collapses and build an alternative system. Today, this might mean exiting the centralized system of the finance/government complex and establishing regional or local socioeconomic “communities” (could be local or virtual). Doing this would cause the collapse of the central system if enough people take this option.

The question is: would the central authorities allow it? They have many means at their disposal, and not all would require violence. This is why it may take the utter collapse of the central system before this is even possible.

It would be better to be proactive, rather than reactive. When the Roman Empire collapsed, the disintegration of European society into minor kingdoms and principalities ushered in about 1000 years of feudal oppression and stagnation. I don’t think we want that again.

Sigh. A couple of chartists I track are saying we're in a Wave 5 up, which means we could see SPX surpassing 1,300 and maybe even reaching 1,362. This should be followed by a huge decline but in the meantime more pain for the bears.

I am afraid that technical analysis to the S&P currently has the same relationship as probability theory to a roulette wheel loaded with electromagnets. This is one of the rare areas where Stoneleigh and I part company. I agree with her that when TSHTF, the Fed will be unable to stop the run on all assets prices, but I think she has grossly underestimated the central banks ability to stall off this dire moment throwing off the timing calls. Of course this is not an investment speculation blog, but just saying.

The other option (I’ll call it “Recapture and Rebuild”) is to take back the system from the financial elite who have captured the government and who are forcing more and more of us into debt peonage (as Mr. Hudson describes it). A strong central authority offers many benefits, and is necessary if the nation state is to survive. (One can argue the merits of this, but I won’t go there.) The problem is reorienting the system so that the central authority represents and works for the people, all the people, not just the financial elites. How we do this is the question. I can envision many ways the authorities can try to prevent it.

It may just be that the central authority will have to collapse before either option can be exercised. I just hate to think that after all is said and done, we the people may just be trading in a large central tyranny for many smaller, local ones.

Thank you very much, Stoneleigh, for the comments today on what is happening in a world seemingly crazier than it was at the end of 2008!

AT least people seemed to have a sense of fitire dangerous probabilities then. Many people I know are on one end of the economic spectrum or the other.

I have neighbors who are still on unemployment but more and more worried about the future. I know a retired Canadian couple who are from Toronto but who spend their winters in Phoenix. These people are doing very well--I have no idea what their income is--but they have a house in Arizona, a place in Toronto and are taking a Christmas cruise this year. They may have family around the world, for all I know.

I know more people who fall into these two ends of the economic spectrum which seems to keep stretching, like a giant rubber band. Stretching, stretching, stretching and the middle where it's stretching the most is becoming thinner and thinner. the thinner part keeps increasing from the middle out to the ends as it stretches more and more.

Our local NBC news had two reports last night about the job picture getting better in Arizona; we have increased a few thousand more than we had in 2009. In the next story the line was that housing is still deteriorating and property values will probably decrease to 2000 levels eventually. I think we're about at 2004 levels now.

Re: public pensions. I am very tired of all the people screaming about the "outrageous" public pensions. Some of those people only looked down their noses at government jobs because they could get so much more in private industry. We were "suckers" for working for government. Now that "they" have lost their private jobs and bonuses (which most public employees don't get) they are angry at those of us who have public pensions. And I and most public employees don't get any SIX FIGURE retirement incomes. GRRRRRRRRRRRRRRRRR!

Thanks you for being one clear headed place in the cyber and real world of total confusion.

What would the ruling class stand to lose if they let the sheep escape the sacrificial altar and take control of the central authority?

What percentage of military, law enforcement and paramilitary goon squads will support the ruling class against that usurpation of their power?

How many Diebold voting machines does it take to screw in another puppet Imperial CEO?

I will provide you with the answer to your tyranny scale concern. The declining flows of energy and capital guarantee that future tyrannies will be local. There might continue to be a titular POTUS, but that person's power will come to resemble that of Hamid Karzai, effectively the Mayor of Kabul.

I did not go to the U2 concert. I mentioned it because it seems that there is a disconnect between what I see over here, in Melbourne, and what seems to be going on in the US. People keep on asking Stoneleigh for timing - I guess they want to buy puts - but it seems to me that the world is moving at a great many different speeds, depending on your location.

Also, the only song by U2 that springs to my mind is Sunday bloody Sunday - about the 14 protestors who were shot in Northern Ireland by British paratroopers. The enquiry cost around $600 million and was only completed this year - 27 years after the event. The troops were not shot at according to the enquiry, but just like 9/11, let's not let the facts get in the way of what we really, deep down, want to hear.

If I had to judge what is worse, the killing of 14 people or the enslavement of 4 million, I know which I would choose. I find it quite remarkable how - seemingly - no songwriter seems to be up to the task nowadays. Where is Bob Dylan mark 2 ?

I feel particularly angry about the Irish fiasco as I had an Irish mother - who left the family farm in 1936 and went to London. She came from the area that was later labelled "bandit-country" by the British press and remembered the Black and Tans raiding the farm in the 1920's - looking for insurgents.

Since I've not been in the habit of filling up or abusing your comment section but your community here does generally have a habit of being unkind to those who disagree, challenge much or talk about things other than fads trending in the news, I've decided that I've run out patience.

There have been times in history when the people have reclaimed their authority over the ruling class or at least captured a larger share of the power pie. Id' like to think this is possible once again.

I do find it interesting however that the pretence of the ruling class is fading. They now seem to care less and less what the "little" people think. I recall an interview of Dick Cheney in which he said, without equivocation, he didn't care what the American people thought. I was both disgusted and impressed at the same time.

With regard to the outcome of the class war, I think this paraphrase of Churchill's famous line about the Aerial Battle of Britain sums it up quite well. Anthony Eden paraphrased this in North Africa when the British were defeating the Italians before Rommel's arrival :

Never in the field of human conflict was so much surrendered by so many to so few....

It used to be (a long time ago) that public sector workers accepted lower pay than private sector workers for the same job as a trade off for better job security.

However, over time, public sector unions grew more and more powerful, and the mother of all salary creeps took hold.

Much of the current disaffection with the public sector is the growing disparity in wages and salaries. By some reports, public sector workers now make as much as 50% to 100% more than a worker in the private sector doing the same or comparable job. That's up to twice as much! This applies for both Canada and the US.

During the worst of the GFC in 2008 and 2009, while private sector workers were losing their jobs and the financial system was crumbling, public sector workers were getting raises!

One particularly ignorant public sector union leader in New Jersey acknowledged the hardship the tax payers of his state were suffering and the state's massive fiscal hole. But when it came time to negotiate a new, more expensive collective agreement, he said words to the effect of "F you, we want our money."

I'll be one of the last people to advocate for lower compensation for anyone. But public sector compensation must be aligned to reality. After all, it's the increasingly burdened tax payer who is making less money that is paying those wages.

IM Nobody said "The declining flows of energy and capital guarantee that future tyrannies will be local. "

Sweet! So nice to see others who understand basic human dynamics. Ben is simply attempting to preserve a large-scale version of the predator-prey relationship.

Absent the ability to re-ignite another round of energy driven consumption sufficient to save the global financial Ponzi, the system will merely reset to more localized levels.

There isn't any way of avoiding the necessity of choosing sides. Right now, the threat still appears to be seemingly distant, but in collapse, you're going to have to choose sides whether you want to or not.

Which tribe - race, religion? What trade - drugs, arms, food? What level of leadership? That is, how willing are you to initiate & exercise violence? Or will you attempt a low-key, 'don't notice me' approach?

Trying to hide out in some fantasy 'Little House on the Prairie' will only make you fair game for any dominant power structure. Like it or not, you're going to have to make a deal with the devil.

The Joker's classic Hollywood catch-phrase.Have you ever danced with the devil in the pale moonlight? I ask that of all my prey. I just like the sound of it.

I have issued advice to those who are willing to listen to the effect that a little house on the prairie, or in the woods (sorry Dan), will make a mighty poor fort. Orlov and Vonnegut advised being in a gang. A militia is also a gang. I see it as very good advice and try to pass it along.

Brad - Good post! We are all caught up in a rather destructive system, and for so long a time it did not even register for many of us.

Greenpa - I applaud the Nigerians attempting the (likely) impossible against that war monger! First a good "caning" and then whatever else the law allows.

El G - Thanks, I had a notion about the discount rate, but this "...and that therefore people will collectively cease to value the future." was an interesting phrase... I take it to mean a state of collective depression (mental, as well as economic.)An amazing story about the drill and the child! Your posts are a real highlight on this blog, which, as Jal stated is the best one around.

One particularly ignorant public sector union leader in New Jersey acknowledged the hardship the tax payers of his state were suffering and the state's massive fiscal hole. But when it came time to negotiate a new, more expensive collective agreement, he said words to the effect of "F you, we want our money."

Uh, no he is doing his job and representing his membership as he was elected to do. But he is at least honest about it. The banksters and the oligarchs rape and pillage, economically speaking, the taxpayers and make them feel comfortable whilst they do it.

The argument is that since public service unions are paid from taxes, the unions need to accept the "fiscal realities" when negotiating a new contract. Yet, when private sector corporations and banks make mistakes that lead to insolvency, they must be saved by the same tax base. Moreover, the impact of the bailouts must not be considered as contributing to the "fiscal realities".(con't)

The "salary creep" statement in my previous comment obviously does not include CEO's, bankers, brokers, and the like.

Well, of course not. They are the masters of the universe, afterall! And they are rewarded for perpetrating the massive campaign of global labor arbitrage over the past 3-4 decades. "Reality" is only for the underclasses of society. The vast wealth imbalances are the evidence of the unfairness of it all. I could give dozens and dozens of examples of how it is one way for the power elites and exactly the opposite for the other 99%.

But I don't have to. That is what I have been reading here at TAE for the past 3 years! This is not a "gray area". It is propaganda, period.

Shamba, you deserve whatever was promised you when you took the job. It was part of the sacrosanct employment contract, imo.

There are many posters here who are quite intelligent, and very good writers, capable of fine comment compositions. Whether that makes their opinions as solidly true as Hoosier limestone one might have occasion to wonder about. Change is coming, and there will be pain, sickness and death, but will it necessarily mean chaos, rape, murder, and "The Road?"

During what we around here call the great ice storm of 2003 it got tough for a few days, no power, which meant in most cases no heat, no water (no pump) and folks had to scramble and work together to survive. It was the dead of winter, January, and everything suddenly came to a stop for a week or so. Surprisingly there was little trouble, lots of cooperation, crying, laughter, and sadly a few deaths--usually related to faulty generator operation etc..

I have no crystal ball and dare not predict the future, I certainly don't know for sure what is coming. But there IS a flip side to the worst of human nature of which we hear so much about, and this good and prevalent nature will not disappear, it will also be made manifest under whatever conditions prevail. So, I just want to make the point that we should keep an open mind to any and all possibilities.

"I'm not afraid of storms, for I'm learning how to sail my ship." --Louisa May Alcott

Chaos, rape and murder happen all the time right now and history is full of it. They will still be with us in the future. Probably until we go extinct. Into the powered down future the incident rate may well increase.

The storm induced power outage says little about how people will behave under conditions such as it starts to look like the power may never come back on. Take another look at that discount rate idea. A storm outage affects people's discount of the future very little because they are sure the power will come back and life will be normal. It's time to party!

In a collapse I assume some people will buck up, make adjustments and try to keep life as normal as possible. Some will discount the future to the max and conclude they don't really have any future left and that is a dangerous mindset. When it comes, do encourage your neighbors to form a gang and look out for each other.

So the tax payer has to just bend over and take it from any group with the political or financial power to stick it to him, eh?

God will have to create more orifices in the human anatomy in order to accommodate you all.

I was not referring to extant contracts, but ones that were negotiated while the system was collapsing.

And your damn right that because the public sector gets funded from taxes they must accept the fiscal reality. If the tax payer only has $100, are you going to take $110? And maybe her shoes too, eh? How about her baby's milk bottle? Do you want that too?

Just because a band of thieves beats someone up and robs his house, that does not make it OK for another band of thieves to do the same thing.

People on this blog like to talk about greed. The bankers may be the pinnacle of greed, but the public sector unions are not all that far behind.

How I think of debt is that it is essentially derived from the concept of the community barn raising. The community raises your barn (otherwise it takes a long time and might never get done ) so you owe some of your labour to the community. We have, because of greater complexity, put that in a form of paper memory, rather than the real thing, one's obligations. We have also added in the carrying costs of this procedure as in this following definition of discount rate:

The rate at which an investment's revenues and costs are discounted in order to calculate its present value.

When we find ourselves not only borrowing from our own future productivity but also future generations' productivity to cover our original borrowing, eventually the costs approach the value of the original borrowing.

Not sure if that is what Stoneleigh means but that is essentially what I think we are doing.

I know that public employers--Fed govt, municipalities and states--have over promised the retirement income and benefits to retirees for several years now. Of course, since 2008 they've had even more problems with continuing those promises.

Our state retirement fund hasn't had an increase in retiree's income, like cost of living increases, for 6 years now. I retired friends who want to know when we'll get one. I keep telling them don't expect to get one for a very long time, if ever. They don't like it and don't really believe me, I'm sure.

I never say that I wonder when we'll be told major benefits and our income will have to be cut! My retired frieds and I are not old enough for Medicare and pay a large chunk of income for med insurance.

peace, shamba

@ Frank A.,

I only hope that they will be able to fulfill the retirement commitments our employer said they could. We'll know soon enough,

It is curious that, as a Canadian, you decide to support your libertarian/capitalist ideas of unions with an example of a "particularly ignorant public sector union leader in New Jersey". Are you on Chris Christie's email list?

I lived in NJ and ran an import/export business for more than 20 years. I left there in 2004, but I can tell you that it is a nice place but one very expensive place to live. (I lived in a 2500 sq. ft house built in 1976 and my last year's property tax was $14,000)

Because of my business,I am very familiar with the longshoreman's (ILA) and teamster's unions in that state. And, while there is corruption in those unions, it pales in comparison to the corruption in the city and state agencies.

In general, the corporations enjoy a system of "pay to play" with the gov't. and agencies in NJ in order to bypass regulatory oversight and achieve significant tax forebearance. This transfers a substantial exogenous cost to the state's taxpayers without any fanfare at all.

IMO, when the thieving, conniving, corrupt oligarchs and plutocrats are willing to give back the trillions and trillions they have stolen from the taxpayers in each state over the past few decades, then I will consider condemning unions for not giving their fair share today.

Don't forget, those public service union members are residents and taxpayers who must pay for their fair share while absorbing the preferential tax abatements and special accounting rules granted to the corporations to alleviate their tax burden.

But if you tell private sector workers that public sector workers are worried about pension increases, you may find many of them will respond with a puzzled look on their faces while they ask, "What's a pension?"

Correct you are. WgS has never been a threadjacker. Her comments have always been worthy of consideration. The threadjacking honor goes to TMO. By my count TMO's comments and replies to them have accounted for 1/4 to 1/3 of all comments to the posts since arriving here.

That's quite an accomplishment for someone that has contributed little new info except the specious notion that the rich are just like us only hard working. An opinion (s)he is entitled to, but I don't know why we have be the site to publish it.

I'm the kind that gives credit where it is due and TMO has earned this. We've had our fair share of trolls and disruptors. All of them combined have not achieved the degree of topic capture that you have managed and you are unmatched for smoothness. Except you do slip a little now and then. That Viper expletive seemed out of character.

Now having acknowledged your general excellence at what you do, it is time to speculate on what it is you do. So, what is it? Psyops?

I spent the evening researching whether there is any English-speaking country that would welcome a retiree immigrant from the U.S. of modest means. The answer is - no. So it seems I have to stick it out here, or learn Spanish (I'm rico enough to be legal in Costa Rica).

As the Firesign Theatre used to say, this is the future - you got to live it, or live with it. Or get out of the way.

Dan said ... I think the best way to pass such information on to future generations is to live it, with them.

Hummmp!I feel that my comment went over everyone's head.

I'll try a direct statement ... look into the historic and religious texts.Put them in the context that our problems have occurred repeatedly in the past and that the warnings have been sent on to our generations.BUT we could not understand them because the teachers, prophets forgot the original intent of the message.

HintDon't look back with a yearning in your heart because you will turn into a pillar of salt.

WgS,Taking a position in public on something true--and then suffering the response, or lack of it, is death by a thousand cuts. I don't know why, but it seems the truer something is, the less it is understood publically. It's like raising kids. If it's worth the effort, we weep at how little we are understood--and without effort try again the next day another way. As mentioned before, it's like the Black Elk paraphrase: "Once I accepted today is a good day to die, everything is gravy."

If it's worth anything, it seems to me Ilargi is a little like a force of nature--fierce storms, clear days, more storms. I read TAE because this seems like a place to commisserate over the pain speaking truth--and I like the weather.... ;-)

First a correction, I said earlier that discount rates fall when the limbic system takes over and I meant rise. Threats, uncertainty, and scarcity all engage the limbic system causing a greater discounting of the future.

Second, the mismatch between biological hyperbolic and economic exponential discount rates can lead people to accept deals that are certain to end badly. Pay day lenders and credit cards are good examples on the individual level. The mismatch between the rate of economic growth and the growth rate of total debt is a good example on an aggregate level.

From the Fed's flow of funds data the growth of total debt has been increasing at a rate of 5.1% a year from 1980 to 2008 with an R^2 of 0.98 while GDP over the same period grew at a rate of 2.6% with an R^2 of 0.99 At these rates the debt doubles ever 15 years and GDP every 29 years.

This is where we get the multiple claims on assets. The government, business, financial, and private debts must all be paid out of GDP. Since the debt is growing more quickly than the productive capacity of society, and thus the quantity of assets, the percentage of assets that have a claim against them must be increasing. The only way the to keep the ratio under 100% is to increase the price of the assets. The price increase is not backed by concurrent growth in productive capacity and is therefore a bubble. A bubble that is only possible because of fractional reserve banking which increases the money supply with every new debt allowing an adequate purchasing power to bid up and buy inflated assets.

When the process unwinds the asset values collapse but the debts remain intact. The process was well described by Irving Fisher's theory of debt deflation, but for the lay person the notion of bankruptcy is more accessible. In a bankruptcy the total value of debts exceeds the total value of assets that the creditors have a legal right to claim. In the case of an individual bankruptcy the asset price don't fall because the individual only holds a tiny share of the assets. In the case of a system wide bankruptcy the assets prices do fall.

The fall in asset prices cascade through the system causing institutions that were solvent before the devaluation to become insolvent. The positive feedback loop that drove asset prices up during the credit expansion also drives prices down during the contraction as described by Hyman Minsky in his financial instability hypothesis.

In a nut shell, the transition from the expansion phase to the contraction phase exposes the fact that the total value of debts exceeds the total value of assets. Or put another way the claims on assets is greater than 100% and thus there are multiple and mutually exclusive claims on society's wealth.

Gaming the system for a quick profit and productive investments have names that have dropped out of our lexicon in the same way usury has.

The long term investment in productive capacity was long ago described by Aristotle as oikonomia, literally management of household, which is the root of the present word economics. The short term return on ownership or gaming the system for a quick profit is known as chrematistics.

The problem we are collectively experiencing is conflating oikonomia with chrematistics. We have been led to believe that the present system is increasing the long term productive capacity when in fact it is an unstable process of gaming the system.

We have failed to understand the difference in part because those gaming the system have a vested interest in obscuring things. And in part because the concepts necessary to understand the process were unavailable; you can't choose something that's not on the menu.

Every dip causes you to cry wolf. 1.5 years and counting and you're still crying wolf and we're still making new highs.

How about spelling the name correctly for a start?

We have not been crying wolf for 18 months. We said there would be a major rally. It has lasted longer than we thought, but that makes little difference in the larger scheme of things. The best place for most people is in cash, rather than at the craps table risking what they can't afford to lose.

People need to minimize the consequences of being wrong. The balance of risk is hugely in favour of cashing out. We are playing a giant game of musical chairs, with something like one chair for every hundred people playing the game. Those who are addicted to doing so are going to have a hard time when the music stops. Why take the risk when you don't have to?

I went to the dentist yesterday. Aside from a little sensitivity to cold, my teeth seemed OK. A deeper investigation turned up a few small cavities. Not too bad for a 48 year old.

Anyway, these cavities will not heal themselves. AND, I can pretend their OK....but for a finitie amount of time. Eventually it's gonna hurt like hell, I could lose a tooth or two....or worse, I could get a pretty nasty infection that impacted other organs.

Your argument about TAE's erroneous calls reminds me of the dentist's patient who argues that the dentist is trying to rip him off because right now the man's teeth feel just fine.

I'm sure you will be fine. Frankly, I'm sure many people who read TAE will be fine. But some of us need to plan very carefully because our extremely finite resources demand good dental hygiene and prophylactic care. :)

One charge against Assange/Wikileaks is that the leaks put lives at risk. I wonder how many lives are at risk if there are no leaks? Many more lives risked in not knowing than knowing I would think.I really really hope we get the inside scoop on the banks before he is picked up or shot. Hopefully before Dec. 7th.If TPTB do succeed in an assassination attempt do they realize they will have created a martyr, a cult figure a la Vendetta? An inspiration to resistance everywhere....

I simply asked two people to tone it down a bit because they were bogarting the comments sections, and what do I get? One takes it personal and wants to leave, the other says (s)he understands but just keeps at it.

I just want the comments to remain accessible for everyone, it's simply not the place for long deliberations, other than in very rare cases. It leads to endless scrolling, and that in turn turns people off bigtime.

I do understand your concerns. I would like to point out that even some of my longer comments are no longer than the comments of many other contributors here.

Also, many of my comments are responses to rejoinders (some quite personal) to my initial comments on some topic. I tend to illicit responses from others on this site because I hold views that are often contrary to the prevailing ethos.

I'm not here to commiserate or back slap. I'm here to share and explore ideas. I suppose I could find some other financial blog where many of my views would fit right in. But what would be the point?

That said, I do appreciate this site, and I thank you and Stoneleigh for running it. I will try not take up an inordinate amount of space.

@ zander, re the possible " managed " furor I have considered that the wikileaks add fuel to the desire of some to restrict/ shut down the net.This furor could strengthen those hands/a managed outcome. If information is power then those with power will resist sharing it.Just hours ago , a very bright,talented 40 something natural leader said about the leaks, " I'm not sure I should know." Polar opposite to my thinking that we should know, be responsible, participate in generating an outcome. Time 's awasting in " the great game', a game from a collapsing paradigm. The wikileaks,IMV, give us a peek at real conditions thus instructing our survival prepartions.

The leadership of the Big 4 audit firms in the UK has admitted that they did not issue “going concern” opinions because they were told by government officials, confidentially, that the banks would be bailed out.

There has been no similar admission that meetings in took place between the auditors and the Federal Reserve or the Treasury leading to Lehman’s failure and afterwards. No one has asked them.How could I been so naive?If it happened in the UK, why not in the US?

We can’t check that those who looked the other way when balance sheets were manipulated and assets valued unrealistically are the same ones now advising how to optimize the value of those same assets for the taxpayer. We are unable to verify if the same partners who failed us at the banks, at AIG, at Lehman, and at Bear Stearns are now managing their assets for the taxpayer.

Agree with most of that, I'm not suggesting contheory, just that TPTB have made the very most of this situ.Hilary is such a maggot eh?She leaves a bad taste, Ilargi once said "is there anything that stinks worse than Blair" patently not, but hey, Mrs C is goin' for it :)A good weekend to you.

Obviously, those who have the most insight into their own companies' prospects agree with Stoneleigh, and disagree with you.

Further, crowing about one's own accomplishments is OK, if boorish. But when one starts ridiculing others for not measuring up, that invites being exposed as a cretin.

For instance, over the past two years it was reasonably easy to make 40% by buying the S&P 500. However, I've made over 100% during the same time period by investing in agricultural commodities.

Thus, anyone who stayed in the stagnant backwaters of the equity markets must be a fool, yes?

Also, the claim that "we're still making new highs" is factually incorrect. The S&P 500, in Nov. and Dec., has been trading at essentially the same levels as it did in April, eight long months ago.

Additionally, if we compare the performance of the S&P 500 since April against a basket of oil, gold and agricultural commodities, (a reasonable "lifeboat" proxy), then "your" markets have UNDERPERFORMED by ~10%. So sad, too bad.

"This system of money chasing its own tail in ever tighter circles is clearly unstable, and I would argue is about to self-destruct under the increasing pressure of its own internal contradictions and the catabolic (self-consuming) process taken past real limits. As it does so, the pace of change will becomes even more rapid for a period of time, and coupled to that will be increasing hardship for a critical mass of people."

Does this mean the end of international trade? Grim for oil importing countries.Barter deals would be the only option then?

"Something else I know in the area of economics is that our current economy is based on fairy dust. Whether people listen to Nicole Foss or Jeff Rubin means little if their primary goal is to guide speculation in wealth accumulation. The fact is that we're not in a recession; we're at the end of an historic period in Western civilization. And Foss comes much, much closer to speaking this truth than Rubin does." from Truth Needn't Be Scary by Dave Ewoldt. Saw it at the Energy Bulletin.

Guy McPherson's latest post at Nature Bats Last, We're Toast reminds us that there are even bigger things to worry about than the uncouth behavior of the Imperial Diplomatic (sic:) Corp.

Lots of thought provoking comments too. As a shameless plagiarist, I'll borrow anything good. I hope commenter Victor will forgive me for taking this.I don’t think Gaia has any intention of managing us – it might be more a matter of “So you are the masters of the universe, eh? Well, master THIS, assholes!”

Zander - I have some of the same feelings and doubts about the wikileaks hoopla, it could be an inside scam of sorts. However, I am with Scandia on letting it all out. More leaks from more sources I say! In fact I hope this is only the beginning especially with regard to publicizing all the inner workings of the big banks and their corrupt world changing manipulations.

I.M.N. - It isn't plagiarism if you name the source! (Victor) And I imagine he would be flattered.By the way, does a neighborhood of citizens of various ages, genders, and occupations qualify as a "gang" if their planning includes arms and security procedures?

Ilargi 2:32 You are a fair man! Glad you didn't show Elliot "Idiot" Wave the same courtesy.

I don't imagine your gang will much resemble the Crips and Bloods or Quantrill's Raiders and the James-Younger gang, but I say any gang is better than no gang. Even ones that can't shoot very straight. My first rule is, ammo resupply is likely to be a problem. Make'em count if you can. I discourage thoughts of rapid fire weapons. There are few things more useless than an empty gun. Especially, if the fight ain't over yet.

I was suprised by the recent announcement of the finding of that bacterium able to replace all its phosphorus with deadly arsenic, quite an impressive feat, revealing a novel biochemistry. Also, the amount of stars estimated to exist has been tripled to 3x10^20 or so, by the discovery of sizeable amounts of distant red dwarfs, so affording plenty of planets to spread the wealth to. Presence of water has been detected on several exoplanets lately, perhaps even in liquid form, and now traces of oxygen have apparently been confirmed in the atmosphere of Saturn's moon Rhea. While oxygen itself could be toxic to most organic metabolisms, generally such factors, when input in drake-like equations, might drastically increase the calculated chances of extraplanetary life existing or advanced civilizations being detectable.

" Sigh. A couple of chartists I track are saying we're in a Wave 5 up, which means we could see SPX surpassing 1,300 and maybe even reaching 1,362. This should be followed by a huge decline but in the meantime more pain for the bears."

Seems reasonable VK, ... barring a collapse in the EMU, due to QE2, I don't see anything other than a flat to very slowly rising stock market until at least March of 2011 and after that it would depend on what Bernanke comes up with and how that is received.

My prediction for next year is the same as the bad one that I made for this year, even so, I say again to all ...

beware the Ides of March.'

I may never be right on the money but I sure will be within 6 months of my predictions. LOL

can it still be a righteous gang, IMN? cause i think i'm gonna become a Mic Crenshaw groupie. straight outta portland! i'm sure he could use another collapsnik in his life. rototillerman, you wit me? your machine kills fascists, right? i know you got toolz. that'll do. i'm like a chameleon so maybe i can be the lookout man. i also know how to not ride my bike. we can hole up in the Che Guevara room when the patrols get heavy on MLK Blvd.

I guess the degree of righteousness is up to the gang. If you manage to get a righteous gang together, I have a step-daughter in Portland who is pretty righteous. She hangs out with the scooter club and some of them are not averse to guns.

apuro en España...Military takes over air traffic control in Spain http://tinyurl.com/266xg2j

Also, an interesting wikileaks piece.... short time agohttp://tinyurl.com/2f47y6g

Interesting that... "Assange said that all of the cables had already been distributed in a heavily encrypted form to tens of thousands of people.If something happens to him, he suggested, the password needed to decrypt the data will be released and all the secrets will go out at once."

As some of the disclosures required by the financial reform bill are made, everyday Americans are starting to figure out what many zealous economy and market watchers have known since 2008: The Fed’s rescue programs weren’t just aimed at domestic banks with Manhattan headquarters. The aid stretched far into the reaches of everyday America, with the recipients of approximately $885 billion in loans still not disclosed.

For those who had not already arrived at this conclusion, it should now be crystal clear: the collapse of 2008 was a mini financial coup d’ etat. The very institutions and individuals charged with the oversight of our financial system were the same people who were helping to blow up asset bubbles and perpetuating cheap, easy credit. I think that it is very important to understand that these folks have been systematically doing the exact same thing to our willing government in the form of debt monetization. In the 1990’s and forward, they sucked in a willing consumer with massive expansion of available credit and sleazy marketing campaigns aimed at convincing people that it was really ok to owe $15,000 on a credit card at 19.9% interest.

The American people and their government both readily embraced the concept of deficit spending and debt accumulation as a viable path to prosperity. The Federal Reserve and its member (owner) banks have been the primary facilitators in this great transition from prosperity to poverty. Its actions in 2008 and 2009 were nothing more than an attempt to snare even more control of the financial system and the economy, while kicking the can down the road just a little further. Banks have gone from their traditional role as financial intermediaries to micromanagers of the economy. And this has all taken place in a little over a generation.

"I have a step-daughter in Portland... She hangs out with the scooter club and some of them are not averse to guns."

i'm sorry to hear that, imn. i'm sure you did everything you could ;). but seriously, know that i'm here for her if the need ever arises. that goes for everyone here.

logout, whoah! (arm.) hope you can still do your P90X. hope you got to swim with some captive dolphins. hope that fleet is finished working on the property next door!

as a last resort to preparing my parents a lifeboat, i was reduced to telling my mom i would finally wear a bicycle helmet if she held some cash and food, and that was the last i heard about wearing a helmet. thanks a lot, mom!

"hope you can still do your P90X. hope you got to swim with some captive dolphins"

Amazing what time and an amazing surgeon can do. Also amazed at your fishing expedition or is it mere confusion re my identity? I don't swim with dolphins though they would swim at the bow of my fishing boat years ago, when I still fished, great guys to watch.

BTW take moms advice even if she doesn't take yours. I have a trophy helmet that is split like a watermelon. The Dr. told me the medical term they use for someone who has hit hard without a helmet. They calls it 'glorped'! I don't think one has to be up on their Latin to figure that one out, eh!?

First of all, congratulations on your land acquisition and your future cabin in the woods. I would have responded earlier, but I wanted to attain further clarity, which your most recent post provided. More on that below.

I have been reading your posts for over two years now, both here and at your old blog. It has been interesting, to read and watch your various stages of evolvement: history teacher, economics aficionado , political candidate, and currently, Dan the Frontiersmen/Meditator, among many other nuanced shades of development and interest. And yes, on rare occasions, Dan the Irrational. To say that you’re a raving eccentric might be a bit of an exaggeration; but I will toss out eclectic with a fair amount of confidence. And God knows how I love imperfection and the flawed(humanness),which brings me to my next concern:

Dan the lonely man, sitting out in his lonely cabin in the depths of winter.

I just can’t see it, Dan. You’re too engaged, too affable, and with too much to offer to self-isolate in response to some perceived dire future. Which brings me to another weird possibility:

M the Psychic Matchmaker.

Dan, have you thought about inviting Wgs out to your cabin? Think about it, two brilliant and vibrant human beings matching thoughts in a very small space. You might not even need a wood stove.

Ok, forgive me for that unwarranted intrusion, but I have yet another thought, and this one not so weird:

Dan the Painter.

You have more enough mercurial passion to wield the brush in an artistic manner. You’ll get very intimate with nature in a very unique way. Additionally, you happen to live in the same region as one of the world’s greatest oil painters. A virtuosos, yet unpretentious painter who never sold out to for the sake of novelty ethos and a flawed perpetuation of “conceptualism”, which more often than not, reads more like ostentatious conceit.

Simple, honest, and straightforward, just like the beautiful scenes he paints. Take a look at another beautiful human being, the magnificent Richard Schmid

I'm sorry, I guess I thought you already knew. Fascism has been thriving here for a long time now. Our national motto, "the business of America is business", pretty much says it all. Though Engine Charlie Wilson's variation put it more succinctly, "what's good for GM is good for the country."

Interesting Vancouver Sun article today (linked from The Oil Drum) about the psychological effect where people believe predictions made by experts and the experts convince the people that they are right despite past mistakes:

I wonder how that applies to (sorry!) Stoneleigh and Ilargi, and our belief in what they forecast.

So, Stoneleigh is probably still right in the big picture, but maybe not about the timing, since I think she may tend to underestimate the ability and willingness of TPTB to do anything to keep the unsustainable going, even with collateral damage.

So that may mean her forecast made in early 2010 that within 6 months to 2 years things would seriously unravel may be off by a bit. By how much or why I'd love to discuss with you all (including Stoneleigh, if she reads this!).

Draft - "I wonder how that applies to (sorry!) Stoneleigh and Ilargi, and our belief in what they forecast." OK. Fair question.The thing is, I don't read "forecasts" when I read Ilargi and the StoneLady. I read an articulate and enlightening evaluation stemming from years of experience in fields of which I am much less familiar. IMO These posts and articles are not supposed to forecast as much as they are to enlighten and to warn others of major economic and related catastrophes in the making.I don't defend them for a moment for any crystal ball elocutions (which I do not hear them make) but they have, and the comment board as well, awakened me to many disturbing realities, for which I have to say, much obliged!

Draft - In answer to your further question, I posted long ago, and still suspect a longer slower decline rather than a quick collapse, not due to any intelligent analysis, just an intuitive notion. These oligarghs are really good at plugging holes as much to save themselves as any other reason.